What's 🔥 in Enterprise IT/VC #308

Seed market on 🔥 as round sizes & valuations adjusted faster than ever, 🪃 effect in venture

Sep 24

Delian captures what’s happening well…I would add that this is the busiest fundraising season I’ve seen in 26 years of investing, yes 26 years!

delian @zebulgar

this summer was dead, both in terms of founders out fundraising/capital deployment the past 10 days have been the most founders fundraising I've ever seen in my 5.5 years in VC question is, will deployment match? there's dry powder or is it going to be a very painful crunch...

While we (boldstart) took a number of pitch meetings this summer and have our largest fund ever at $192,168,111 to lead rounds at company formation, to date we have only written two checks, one $400k and the other $600k! That has all changed the past couple of weeks as we are more 🔥 up than ever with 3 term sheets in action in new categories of dev tooling, crypto infra & SaaS. I can’t wait to share these with all of you!

So what has changed? IMO while valuations still have more to fall in the public markets, the long lag factor effect between public market pricing and early stage pricing has finally adjusted and taken hold. When public markets get 🔨, late stage valuations are the first to go. That adjusted almost instantaneously as there is very little growth investing these days. What usually takes much longer is for this to trickle down to seed and A rounds. Well guess what? It’s happened faster than ever as the smart founders understand the that raising too much capital at too high a price can impact their future.

$5M-8M seed rounds used to be the norm pre-crash and in the last few weeks, most of what we saw was in the to $2-4M range which makes sense as downward pressure on round sizes and valuations have trickled down from the publics to A rounds and now seed. As founders at the earliest stages have now internalized what a great round today can look like, we are all busier than ever. While no one knows where the bottom is when it comes to valuations and many believe that there is more pain to come, I do believe we are at the bottom for seed round sizing and pricing. Also, if you believe what Jon Sakoda from Decibel has to say, this is going to be an interesting finish to 2022 as a wall of 💰 is waiting to be unleashed over the next couple of years.

Jon Sakoda @jonsakoda

(1/5) The VC industry has the highest level of dry powder after a record breaking fundraising season and a summer slowdown in deal pace. There is ~$290 B in dry powder available for startups in VC funds - when will the funding floodgates open?

One other reflection I had this past week was around the importance of thinking LT versus ST when it comes to partnering with founders. Read 🧵 and comments.

Ed Sim @edsim

What would u do differently if u thought of each new investment as 1st of many? U would not over optimize 1st exit but also 🤔 about founder’s next. If done right way these founders will 🪃 back + many go on to build much bigger cos in 2nd act @snyksec @Superhuman. Play long game

2 of the 3 term sheets we currently have in play are all heavily influenced by relationships we established in Fund II dating back to 2012! Both are cofounders of new companies, both had some early struggles where we had to step up and lead internal bridge rounds, and now we have had the privilege and honor to get the first look at their next startups. When it comes to both Snyk and Superhuman, both of those relationships were also started in Fund II and in those situations, each founder sold early before raising an A round (to Akamai and LinkedIn respectively). While we did make a nice return, it certainly wasn’t the 20x outcome we were hoping for. That being said, this is something the founders wanted, and we did all that we could to help them realize their initial exits. Fast forward, and I am truly 🙏🏼 that we had the opportunity to not only brainstorm on the initial ideas for Snyk and Superhuman, but also lead their initial rounds at company formation. This is just a reminder for investors that the first check you write with a new founder relationship is hopefully the beginning of a much longer journey. Make decisions with that framework and the 🪃 will come back many times over. Founders, please also choose your initial investors carefully as if done right, it will hopefully be the beginning of a many company partnership and friendship.

As always, 🙏🏼 for reading and please share with your friends and colleagues.