Although 2021 is far away in addition, it has already witnessed a record level of venture capital activity in the technology sector. With larger round sizes announced daily, founders can have their choice of term sheets, but they need to think critically and strategically about which companies to add to their capitalization table.
So far this year, we have registered $ 292.4 billion in venture capital funding across the world, of which $ 138.9 billion has been raised in the United States. Specific to tech companies, capital is only accelerating: in the second quarter, founders raised 157% more capital compared to the same period last year, according to the latest data from CB Insights.
It’s not just that more and more companies are fundraising
– they do so at a higher valuation. Median seed and Series A valuations today stand at $ 12 million and $ 42 million, respectively, up 20% to 30% from 2020. Part of this can be attributed to the ‘increase in exits / mergers and acquisitions in the technology sector, to a record number of IPOs and general optimism around the technology, as well as low interest rates and market liquidity.
Good VCs aligned with a startup’s vision create more value than the dollars they bring.
In an era of record venture capital activity, founders would do well to go back to basics and focus on fundraising principles to determine who sits at their ceiling table. Here are some tips for founders in this direction:
1. Value> valuation
Good VCs aligned with a startup’s vision create more value than the dollars they bring. Typically, this value is created across a few distinct functions – product, sales, domain expertise, business development, and recruiting, to name a few – based on the experience of the fund’s partners and the fund. composition of their limited partners (investors in the venture capital fund).
Additionally, the right VC can serve as an authentic and objective sounding board for CEOs, which can be an asset for a startup navigating the uncertainty and typical challenges of scaling a youngster. company. As founders evaluate multiple term sheets, it’s worth considering whether to optimize for the VCs that offer the highest valuation or those that bring the most value to the table.
2. A two-way street
Part of managing an effective fundraising process involves holding VCs accountable for their own due diligence requests. While it’s sadly common for VCs to ask for a lot of data up front, startups should share information after assessing investor intent and appetite.
For each request for additional data, founders are well within their rights (and should) check with their potential investors on the status of the process and get indicative timelines to move on to the next steps. Mark Suster said it best: “Data rooms are where fundraising processes are going to die. “