Is a World Coming Where We Don’t Need VCs at All?

The Rise of 1000 Unicorns and 100 Decacorns, combined with the overnight changes to fundraising processes from Covid, have radically changed venture capital:

  • Tiger alone is deploying $100 billion, mostly into Cloud startups, and very quickly.
  • There are probably 100+ founder and operator-led funds now of $50m-$100m each.  With many more coming.  Many more.  Who often make decisions in minutes. If you could get your entire round filled with great CEOs, VPs, and execs — why wouldn’t you?  Well, there are downsides, especially to not having a lead investor (more on that here).  But still.
  • Valuations have understandably grown to the point where a typical seed fund of, say, $20m-$50m really can’t buy a traditional 7.5%-10% of a round anymore.  At least not in many cases.
  • Funding over Zoom has not just accelerated timelines, but accelerated risk tolerance.  With less diligence, and less time.  Which makes it easier to automate.

What does the future hold?  I don’t know, but it feels like change is coming every faster than we have foreseen — for some.  For the privileged, at least.

For some:

  • Top accelerators will create 1000+ high quality startups a year.  Each.  Engines like YC and EF and others have automated the creation of a “high quality” pre-seed startup.  Not all will succeed, of course, but most are founded by wicked smart founders with, in some cases, already a hint of traction.  Perhaps this would have happened pre-Covid, but Covid pulled this ahead years.  No more need for in-person batches, etc.  “500 Startups” a few years back used to sound crazy.  How could anyone ever fund 500 startups?  Well now, many folks will — every single year.
  • Entire pre-seed, seed, and even Series A funds can be raised from operator funds and angels — and bypass traditional funds.  No need to sell 10%+ to any specific fund means the traditional seed fund is more and more marginalized.  With 1000+ unicorns and 100+ decacorns, founders and execs from these leaders will continue to raise funds that are in many cases less ownership and valuation sensitive than traditional seed funds.
  • Debt and revenue-based financing is already almost automated — and that change happened fast.  Debt can’t take as much risk as equity, but having it automated is a huge change, and opens the category to 100x more startups than in the old days when Silicon Valley Bank would hand pick the top startups for debt lines, etc.
  • Funding “engines” / machines at Tiger, Insight, etc. are / will essentially pre-fund break-out SaaS and Cloud companies (those proven with data) in almost real-time.  This used to happen of course, but not as (almost) automatically as now.

Now, this is for some startups.  For the privileged.  The whole creation and funding cycle is becoming an (almost) automated machine.

For the less privileged, and for the outsiders, getting funded may be harder than ever, as more and more capital focuses on break-out leaders.  That may be the real home of the venture capitalist.  The overlooked, the nonobvious, the ones others don’t get or see.

As perhaps it once was.

 

Published on November 11, 2021

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