Funding Fridays No. 11

Kyle Westaway

May 06, 2022

Funding Fridays - a briefing on startup funding.

Happy Friday!

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The VC Pullback

No VC wants to do “a 2022 deal at a 2021 valuation”, but what is a 2022 deal exactly?

We’ve certainly come down from the 100x-200x ARR craziness but there’s still the odd financing round that gets done at those levels. Founder expectations are all over the place, with many still living in the 2020-2021 valuation world. The general perception amongst VCs is that deals are still very expensive.

Only two parts of the market have been spared thus far: (1) Seed. Arguably, the seed stage should be the most recession-proof area of venture, because seed companies are 6-10 years away from a meaningful exit, the checks are smaller. (2) Crypto. The web3 market largely follows its own logic. And after an explosion of crypto VC funds, there’s arguably a lot more money chasing deals, than truly exciting companies and projects just yet.

One variable that seems to be changing is round size expectations, perhaps as a precursor to lower valuations. The inflation there has slowed down considerably. Over the last couple of years, Series A rounds had ballooned from $12M-$15M to $20M. It seems that the $20M Series A has largely disappeared, and I’m seeing asks back down to $10M-$15M.

The hardest question is whether startups should rush to the financing market now and get a round done before things get too bad. That’s highly case specific, but if you’re getting to 12 months of cash runway or less, it might make sense to raise funding sooner rather than later. At a minimum, financing processes are taking much longer than they did in the last couple of years. Matt Turck (17 minutes)