What Does the Market for Series A Investments Look Like in 2017?
I think we’re in a slightly strange place:
- All the big + successful VC funds have gone back to market and have raised fresh, larger pools of capital; A LOT of capital; and
- The markets have rebounded from the Feb ’16 lows and VCs are comfortable with investing; and
- The explosion of seed-focused Micro VCs has primed a lot more solid Series A candidates; and
- We had a number of strong exits in 2016, both big M&A and IPOs, to feel good about.
- Everyone has money to invest and is at least feeling somewhere between OK and Good.
But there are headwinds:
- Many of these new, big/bigger funds haven’t actually even made an investment yet out of their latest funds. Yes, the headlines talk about a lot of new funds. But many haven’t even drawn down a dollar yet. They just raised the funds while the getting was good. But these new funds, while signed and committed, are still on the shelf. At least for the moment.
- Many VCs at least in SaaS that I know are slowing down and digesting. They have a good hand, and want to sit for a while. Many good, successful SaaS VCs I know have slowed down their investment pace. Not all. But a lot of them.
- The bar has gone up. Now we know what the bar is. Before, you could say Salesforce and Workday were outliers. But now we’ve had a wave of good IPOs. To raise a Series A, you have to have the potential to be as good or better than Twilio, New Relic, Nutanix, AppDynamics, Coupa, Box, etc. That’s a tough bar my friends.
- That means you have to have the potential to be growing 70%+ at $100m+ to really get funded at Series A. That’s a really high bar. Man it’s high.
So many successful VCs have become more measured. If it’s not better than Twilio (at least potentially) — why bother?
So many companies in SaaS today that aren’t getting funded would have in ‘13, ’14 and ’15 in particular.
You can sort of “feel” it from the BVP Cloud Index:
You want to invest here. You do. But the multiple growth isn’t what it was. If a start-up doesn’t really have outlier potential … you pass. You don’t just hope it does.