If you happen to observe mainstream tech media, you can be forgiven for pondering that enterprise capital is a founders’ market in the present day after two years of file spherical sizes and outcomes.
There may be some reality to this: VC had its biggest year in 2021, greater than doubling from 2020, which was already a file yr for investments. Virtually 400 new firms surpassed a $1 billion valuation in 2021, growing whole unicorn rely by 69% in only a yr.
Tales abound of huge rounds materializing rapidly for firms at even the earliest phases. Wing VC, which tracks financings by Silicon Valley’s most “elite” VC funds, reports that the median Sequence A financing by these corporations grew by 38%, and corresponding pre-money valuation by 71%, each off earlier file highs recorded in 2020.
However hidden beneath the headlines is one other story: Greater valuations are accompanied by a a lot bigger variance amongst firms. As Hustle Fund’s Elizabeth Yin tweeted lately, spherical sizes and valuations haven’t grown for all firms throughout the board; moderately, they’ve bifurcated.
This tracks with my expertise investing in firms based by girls, most of whom had been first-time founders and disconnected from mainstream VC. For each story I hear about an enormous spherical that got here collectively in two weeks, I meet 20 nice founders who hustle for months and may’t increase a penny.
A fund recognized for main large rounds in pre-revenue, pre-launch, pre-everything firms instructed a founder in my portfolio that they need to see her attain $1M+ annualized income earlier than contemplating her pre-seed.
The expertise amongst founders varies so tremendously, they could as nicely be dwelling on completely different planets. Founders who’re skilled, pedigreed, clean or nicely related — or some mixture of those — stay in a planet of massive, buzzy, aggressive early rounds, which we’ll name “Planet Flush.”
Founders who’re outsiders, don’t usually match the sample and usually are not related to sources of capital stay in a planet the place fundraising is extraordinarily troublesome and unlikely, necessitating very scrappy execution to even get an opportunity to develop. Let’s name this one “Planet Scrappy.”
On the threat of stating the plain, investor habits is totally completely different in Planet Flush and Planet Scrappy. In Planet Flush, on the earliest phases when there’s no tangible traction to guage, buyers are snug having a bet on the dimensions of the market and the perceived caliber of the founders.