If you’re a Founder planning to raise money you need to follow the state of Venture Capital and interpret things happening like an investor does.
EY does a quarterly report on the latest VC trends; here are a few interesting highlights from their latest edition:
1. Overall VC funds deployed is slowing this year (compared to recent all-time highs)
2. Sectors generating the most interest are IT, business/financial services and healthcare. Energy, Consumer Products/Services and Industrials are sectors generating the least interest.
3. Where the VC space is growing is in new funds formed (set to break records in terms of growth for the 3rd year running.)
4. Expectation is that Q3 investments will be lower than Q2, driven mostly by the “fear of missing out” being gone.
Now, a few reality checks and responses to these highlights from the report.
1. The startup investment space was never going to grow indefinitely. This decline is coming off continuous record-breaking years in the past and this quarter’s growth alone would have been enough to break records from back when this bull run first started. Plus this decline in growth is happening with the consumer VC space essentially on hiatus for new capital deployed since that is the area most impacted by inflation, cost of capital, manufacturing and supply chain issues.
2. New funds formed are a major source of opportunity for startups raising. These funds, like you, are looking to make their name and plant their flag in the ground. I know of SEVERAL amazing newer funds that have launched over the last few years ran by some amazing people who are the types that Founders should want to partner with.
3. VCs and Investors who slow down capital deployment are doing so for many reasons; but the quality or outlook on the ideas they are seeing is NOT one of those reasons. What investors know is that it is in these moments that truly TRANSFORMATIONAL companies emerge. A lot of what is driving the slow down is the VCs ability to raise money themselves.
4. Not discussed enough is the amount of uninvested VC money that has been raised but not deployed (aka “dry powder.”) Currently it is estimated that there is $290B in VC money sitting on the sidelines. Some expect another investment boom coming at the start of next year once certain other markets stabilize.
So yes, the death, decline or destruction of the startup investment landscape has been greatly over-exaggerated.
Sure it will be a grind for many entrepreneurs who want to raise in the coming months. It’s going to require new tactics and strategies and a supreme amount of work, confidence and patience to break through these barriers. But I mean, when ISN’T this the case for Founders?
JC Garrett serves as the Chief Executive Officer for FarShore and is the primary startup mentor for its investment and advisory arm, Dashfire. He started with FarShore in its early stages over 10 years ago and has worked closely with hundreds of startups to be a strategic leader in their tech and business planning processes. While software development is FarShore’s business, JC always looks at tech with the end goal of creating profitable and sustainable ventures that can raise money, scale operations and grow revenue. Before joining FarShore/Dashfire and after completing his MBA with dual concentrations in Entrepreneurial Management and Marketing, he joined a B2B SaaS startup overseeing Strategy, Marketing and Operations while advising dozens of startups to help them successfully plan and capitalize their ventures. He also currently serves as a coach for several startup accelerators/incubators, is a frequent guest lecturer, speaker and workshop host in the technology and startup community as well as being the co-host of the soon to launch “Mentor Musings” podcast series.