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.
So …
- 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.
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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.
