Why is every tech company raising millions of dollars? Doesn’t anyone bootstrap to exit anymore?

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JASON LEMKIN

I think you may be a “victim” of tech PR.

While perfect numbers are hard to get, my look at the data suggests only about 50% more money is going into venture capital firms as an asset class than a few years ago.  And valuations have also gone up at least 50% … so that doesn’t leave a ton of room for more start-ups to get venture capital.

Although perhaps as much as 10x more capital has gone into true angel investing (it’s hard to tell, but this feels about right).  So far more very early stage start-ups are able to raise a fairly modest amount of angel capital (almost always not primarily from VCs) from a variety of sources other than VCs.

And a lot more money from mutual funds, hedge funds, and alternative asset classes has gone into later-stage investing.  But this isn’t traditional “venture capital.”

But VC funding isn’t that common, or that much more common.  Most VC firms do 1-3 investments, per partner, per year.  And there aren’t that many new firms, other than micro-funds which really are simply a fracturing of $$$ that would have gone to larger firms.

Call this the Series A crunch, if you will.

What has gone up is the round sizes in particular.  With the growth of valuations, larger funds, and more money deployed in later stage rounds by non-VCs … the headline numbers are shocking and impressive.

But the number of true venture-backed early-stage start-ups hasn’t changed that much.

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Published on October 18, 2015
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