It’s hard to believe yet another year is drawing to a close. 2017 feels like the fastest one yet. Hopefully this year was productive and successful for you both personally and professionally.
Now that a couple more quarters have passed, we want to update everyone on how venture funding played out for 2017. As suspected, the trend of record amount of venture funding this year continues, surpassing the all time high of 2015 (pitchbook). Some of the largest funding rounds this year included multibillion dollar fundings into companies like AirBnB, Lyft, and Uber.
While this is an excellent sign for the VC market as a whole, these fundings are heavily skewed towards growth rounds and very late stage venture capital as the IPO market stalls and companies stay private for longer. So the total amount of VC dollars invested is quite high, but it’s very concentrated in several billion dollar + financings this year. In fact, at the earlier stages of venture capital, there’s a huge drop off in the number of early stage financings this year compared to the 2014 peak.
What does this all mean moving forward?
Well, if you are a Series B+ company and fundraising, consider yourself lucky. While fundraising isn’t guaranteed, there certainly hasn’t been a better time to raise a growth round. At the earlier stages, it’s important to stay on track with goals and milestones. The number of companies receiving early stage equity financing is close to half of what it used to be, but that doesn’t mean funding isn’t available for early companies that execute to get past an MVP to a full blown product, or demonstrate some form of traction and growth over a period of time. This also means that it’s wise to plan on the Seed/Series A deals to take longer to close. The typical seed deal may take 3-6 months, but in this climate, with volume of deals cut to this extent, it’s safe to say that the average seed deal closing may take closer to 9 months or even up to a year in some cases.
What are other financing options out there that will help you get past this early stage slow down?
Credit facilities, receivables financings, and venture debt are useful tools that can be used to stretch the runway of the company in this climate. In rare cases when the entrepreneur explores these types of financings, they may become cash flow positive, and they can grow organically without needing additional venture capital. Not all debt is bad and in fact, the most expensive form of financing is equity financing when dilution kicks in. We think this shift in financings may not be a bad thing for the entrepreneur, as it will force them to look at other non-dilutive forms of capital mentioned above, or put more emphasis on organic growth.
Please feel free to reach out to EGFS with questions and comments. Happy Holidays and best wishes in 2018!
Follow us: @EarlyGrowthFS
What Are the Tricks to Raising Investment Capital?
Venture Capital Term Sheet: 7 Things You Need to Know
How to Build a Winning Pitch Deck :: Webinar Recap