PwC and CB Insights put out their annual report on venture capital and it’s fantastic. A few trends jump out that are remarkable, with big implications for founders now and VC in the future.
Venture funding up, deals down. Checks to startups are getting bigger, but they’re going to fewer companies. The table below shows a record level of investment for the period shown ($99.5bln during 2018) but a low in deals not seen since 2014 (5536 deals in 2018). This means fewer checks are going to startups, but those checks are getting bigger. The downward trend is only a year in, and as the chart shows, the number of deals fell dramatically from 2015 to 2016, but then rebounded in 2017. So, it’s too soon to say VC are going to do fewer deals in 2019, but clearly the trend line is down from 2015 when a peak of 6,098 deals were done.
Seed stage deals are way down. The percentage of seed deals (25%) as a share of the total fell through the floor in 2018, down for the second year in a row from 2016 when the share was 34%. If this trend continues, it has big implications: i) it’s clearly harder for seed stage companies to attract capital as the trend line is way down since 2013; ii) fewer seed deals now means fewer later stage deals tomorrow. This means venture investing is going to get even harder than it is now as the number of companies will decline since we’re seeding fewer founders today.
If you’re seed stage business, raise a larger angel round than you think you need because this is not a good trend for seed rounds. If you can get past the seed stage into later rounds over the next few years, you’ll be in a great position as there will be fewer late stage opportunities for VC to choose from. Fewer opportunities means much higher valuations for those companies that can get to the later stage.
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