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Bursts of Color - Raising VC in 2021 - Reality Check Edition

Bursts of Color - Raising VC in 2021 - Reality Check Edition
By Geoff Donaker • Issue #64 • View online
A few months ago I posted some thoughts and benchmarks about Raising VC in 2021. Since then the market has gotten even more frenetic and the reports of record funding levels may lead a casual reader to think that raising venture dollars is a walk in the park.

For Whom Gravity Doesn’t Apply
Despite all this chatter, most of the money, attention and headlines are going to a select group of companies that are:
  • Raising later stage, Series C+ rounds
  • Delivering >$10m net revenue while still growing very fast
  • In a handful of favored sectors like FinTech and Crypto
It’s true that for these companies, historical rules of finance gravity seem not to apply. If this is you: rock on! No need to read further.
The number of Seed rounds *declined* 27% in Q3 vs last year
The number of Seed rounds *declined* 27% in Q3 vs last year
For Everyone Else: It’s More Complicated
Per the Crunchbase report, Series A/B rounds have grown modestly, and new Seed rounds actually declined this year. And in just the past three days, four different VCs have told me that they are overwhelmed, over-invested relative to plan and said something like:
When the market goes this fast, we go slower.
Watch Out for Unrealistic Benchmarks
So if you hear yourself or your co-founders saying any of the following, you may wish to reset your expectations:
My friend just raised a huge round at 100 times ARR, so that seems like the right valuation benchmark.
We raised X last year; we should be able get 5X this year.
VCs are moving faster than ever - I’m going to start pitches next week and raise in November.
I don’t need to update my deck or model… some interested investors have been calling, so one of them will pre-empt.
One firm said they’re interested and would get back to me, so I think they’ll send a term sheet next week.
My insiders love what I’m doing; I think they’ll lead my next round.
All of these things are possible. They are also extremely rare.
So What’s a Founder Supposed To Do?
The good news is that there are still plenty of investors and dollars out there for all the strong founders. Here are a few standard fundraising suggestions that feel particularly relevant now:
  • Get your deck and financials tight before you ask for meetings
  • Think carefully about your capital raise target based on what you really need and can deploy effectively
  • Be prepared to kiss a lot of frogs and take your time getting to know each over a number of weeks or months
  • If you’re not already in market, consider waiting until Q1 to avoid running a process during the holidays
  • Never tell VCs your valuation expectations - just say “we’ll let the market tell us what the right price is”
  • Don’t overplay your hand by telling investors how fast your deal is going until you have a term sheet in hand
In short: stay patient and confident… just not overconfident. 😎
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Geoff Donaker

Bursts of Color is a newsletter for start-up leaders who work with Burst Capital. It's meant to include products, people and ideas that I think are interesting and maybe relevant for you.

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