AngelList: Early Stage Valuations Actually Aren’t Up That Much. It’s The Top Startups That Are On Fire.

It can be hard to tell from the media and Twitter just what’s happening in SaaS and Cloud startups these days.

We see emerging leaders like Brex quickly raise at $7B+ and ClickUp raise at $1B just months after raising at a fraction of those valuations.  We see hot earlier-stage startups out of top incubators getting funded at record valuations.

But, like with most things, it’s not quite that simple.

In fact, what really happened during Covid was a flight of capital to the top properties.  The best SaaS companies grew even faster during Covid, and attracted even more capital.  Sometimes at 2x-3x the valuation of just months before.  But those that didn’t grow faster quietly struggled to raise at all.

So net net, a ton more capital went into later-stage deals, but often into startups that did even better during Covid.

What about early stage?  Well, here AngelList has terrific data, since so many start-ups are on its platform.

And what has Angelist seen?  This.  A decline in valuation for pre-seed startup, and barely any movement at seed:

But for the hottest of startups, it’s a different story per Angelist.   For Series A+ rounds, valuations are higher than ever:

“Valuations rose across every stage of funding on AngelList — aside from pre-seed and Series C. Valuations for seed-stage deals on AngelList were up 9% in 1Q21 compared to 2020. Series A: 80%. Series B: 48%. Series D: 39%.”

Hot Series A, B, and D rounds are happening faster than ever:

This is consistent with what I’ve seen.  Cloud went on a tear after things stabilized, post-Covid, and venture followed.  But most of the capital went into the top startups VCs already knew.  Funds like Tiger took advantage of this, often doing large deals in just a week.  But they’re doing deals into (x) hot startups, (y) they already know, (z) with proven, top decile traction.

For the rest, it’s really not any easier to get funded than a year or two ago. Battery Ventures’ data said the same thing from a different perspective.  While many more dollars are going into SaaS and Cloud startups — they aren’t really going into more startups.  More on that here.

Just a few actionable thoughts if you plan to fundraise soon:

  • You’ll know if you are “hot”.  If you aren’t — don’t overplay your hand.  Yes, the hottest SaaS companies are getting funded more quickly and at higher valuations than ever.  But you’ll know if that’s you.  The VCs you talk to will tell you.  Your existing investors will tell you.  It will be easy if you’re hot.  Otherwise, even in 2021, it won’t necessarily be any easier.  Look at the AngelList pre-seed data.
  • Ask your existing investors (if you have any) how you stack up.  They see a lot.
  • Be careful about “running a process” and jamming all potential investors into a tight timeline.  This can work really well again if you’re obviously fundable.  But it can backfire if you’re a startup where it may take more time to get to know.
  • Don’t communicate super-high valuation expectations until you know you can.  Others may disagree, but when you go in “hot”, make sure you can back it up.  Otherwise, VCs will fade away.
  • Don’t hide the challenges, issues, and cons.  Yes, VCs are invested faster than ever.  But they aren’t stupid.  They also need to look for flags and issues even faster than ever, too.  Don’t hide the fact last month was slow.  Don’t hide the fact a key VP or even founder is quitting.  They’ll find out.  And you’ll lose the deal.  And the thing is, with the crazy pace these days, you won’t get a chance to explain or show more progress next month.  They’ve moved on to the next hot deal.

Carpe diem!

 

Published on May 3, 2021

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