Some trends in VC right now - it's an interesting time of bifurcation and money:
1) At the early stages (call it pre-A or the whole "seed range"), I'm seeing lots of bifurcation. On one hand, in the Silicon Valley, for some founders, it's never been an easier time to raise.
2) These founders, largely serial entrepreneurs / pedigreed founds (based on schools & work), are highly sought after even at the pre-seed stage.
3) So with these founders (mostly in SF), I'm seeing massive party rounds -- like $3m-$5m seed rounds. Sometimes higher! No product / no traction. My friend - fantastic founder - raised $8m recently. $30m+ post-money, no product. If you have this background, raising is EASY.
4) For non-pedigreed founders, if you are running a SaaS company & have some rev traction, also pretty easy to raise. VCs have gone gaga over SaaS in the last 2 months. They think predictable cap efficient companies are the way to go in light of issues at unnamed marketplace cos
5) And then, there's everyone else. Still HARD to raise money. Even in the Bay Area, if you don't check said boxes above, it is HARD. Outside the SF Area, even harder.
6) So we have a weird Goldilocks & the 3 bears situation. Some companies are really HOT. Others are really cold. The range of valuations are insane. Everything from < $1m post valuations to $30m+ for PRE-SEED!
7) The press mostly writes about the hot deals. Afterall, no one wants to read about someone's poor fundraising situation. So, now everyone thinks Silicon Valley is littered with gold. The reality is that SF mostly has poop on the ground. Sometimes you will find a Benjamin.
8) Then there's the downstream. The later stages. In 2020, I think raising a series A or a series B will become incredibly challenging. (fundraising always is, but even more so than last yr at least).
9) Why? VCs all of a sudden care about profitability. Your co still needs to be growing at 30% MoM AND also profitable! 😄 (unclear why you need VC in this case but that's beside the pt :) )
10) This is because 1 large unnamed fund invested TONS of money into a lot of seemingly hot but unprofitable companies and then lost a lot of money. Now a lot of VCs are scared. As it would turn out, you cannot "will" a business to work with large amounts of capital.
11) This change in mental models now affects all founders coming up beyond seed. A new focus on profitability is going to separate the winners from the losers in this next few years. Thriftier founders will win.
12) However, from past exp w/ past portfolio cos, this is incredibly hard for founders who have had an easy time raising large amnts of seed money, because they end up with high burn and don't realize just how hard fundraising will become.
13) So here's the irony - it's actually these pedigreed founders in our portfolio that I worry about the most in these environments. Yet, they were the ones who were supposed to have the easiest time building big businesses. That's why VCs threw money at them in the first place.
14) In fact, it's usually our thriftiest founders - usually by necessity because fundraising was always hard for them - that I think do the best in these conditions. They crank out good biz practices & watch cash like a hawk and know precisely how much money is coming in and out.
15) So to recap:
A) Good founders come from everywhere even if $ isn't thrown at all of them.
B) A mark of a good founder (beyond being highly skillful & good hiring) is being deeply analytical - understanding unit econ & cash flow
C) Being thrifty (usually has grit & speed)
16) Lastly, my hope for the @HustleFundVC portfolio - regardless of which bucket our founders fit - is to watch burnrate this year & focus on getting to profitability so you can control your own destiny. At the end of the day, isn't that what building a business is all about?
You can follow @dunkhippo33.
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