Kevin Dowd’s Post

Early-stage founders on the fundraising trail, take note: For the first time in nearly two years, seed and Series A deal sizes are both trending up. There's a link in the comments below to my full story on the latest numbers. In the meantime, here's the short version. The median seed deal size on Carta climbed 7% to $3.2 million in Q3, according to the first cut of our State of Private Markets report. The median Series A deal got 20% bigger, reaching $9.1 million. The last time that median deal size increased at both of these early stages in the same quarter was Q4 2021, back at the peak of the pandemic bull market. From Q1 2022 through Q1 2023, the median Series A got smaller for four straight quarters. Now, it's increased in two straight quarters, good for a 30% overall increase. Series A startups are still raising smaller rounds than they did two years ago, but momentum seems to be moving in the right direction. Median valuations at these stages also increased in Q3, although not as significantly. The median seed valuation rose by 7% in Q3, and median Series A valuation rose by 2%. It's worth noting that these exact figures will likely shift as more data from Q3 comes in. But for now, it appears the market for early-stage startup funding is moving in the right direction.

🚀 Exploring the Power of SAFE Notes in Startup Funding! 💡 Startups and investors, gather around! Let's take a deep dive into the world of Simple Agreement for Future Equity (SAFE) notes, a revolutionary funding tool transforming the startup landscape. 🌱✨ 1️⃣ Understanding the Basics: SAFE notes are a popular form of convertible note, designed to offer a simpler, more founder-friendly alternative for early-stage fundraising. They allow startups to raise capital without immediately giving away equity. 2️⃣ Conversion Mechanics: A SAFE note converts into equity at a future financing round, typically when priced equity is determined. This offers flexibility and allows investors to benefit from the growth of the company. 3️⃣ Valuation Cap: A key feature of SAFE notes is the valuation cap, setting the maximum valuation at which the investment converts into equity. This protects early investors from dilution while supporting their potential upside. 4️⃣ Discount Rate: Often paired with a valuation cap, the discount rate gives early investors a reduced price per share compared to future investors, incentivizing their early support and risk. 5️⃣ Maturity Date: While rare, SAFE notes can have a maturity date. If the startup hasn't undergone a qualifying financing event by this date, the note might be repaid. 6️⃣ Pros for Startups: Allows startups to secure funding quickly without immediate equity dilution, attracting early investors and fueling growth without the complexities of a priced round. 7️⃣ Pros for Investors: Provides an opportunity to support promising startups early on, with potential for substantial returns once the SAFE note converts into equity. 8️⃣ Negotiation and Customization: SAFEs offer flexibility for negotiation, allowing startups and investors to tailor terms that suit their unique needs. 9️⃣ Challenges: Some critics argue that the lack of defined terms can lead to disputes during conversion, emphasizing the importance of clarity and communication. 🔟 The Evolution of Funding: SAFE notes are a testament to the innovative spirit of the startup ecosystem, evolving to meet the needs of both founders and investors in a fast-paced, ever-changing landscape. Are SAFE notes a game-changer in startup funding, or are traditional convertible notes still your go-to? Let's continue the discussion and drive innovation! #SAFENotes #StartupFunding #InvestmentInnovation #EntrepreneurshipJourney

Valuations of startups have quietly rebounded to all-time highs. Some investors say the slump is over Valuations climb for early-stage, late-stage deals: Median startup valuations for US early-stage and late-stage venture capital deals climbed to new heights in the first half of the year, according to the PitchBook-NVCA Venture Monitor First Look. However, PitchBook's Kyle Stanford cautions that those statistics are based upon a fairly modest number of deals involving very strong companies. "It's a good market right now, if you are a strong company, but if you're struggling to hit growth targets you had set out before the pandemic, it's a really hard market," Stanford said. According to PitchBook data, valuations for all but seed-stage companies dropped in 2023 compared to the year prior. But during the first six months of 2024, prices investors were willing to pay for new deals of U.S.-based companies not only recovered, but also reached an all-time high for median early- and late-stage deals, according to the latest report from PitchBook and the National Venture Capital Association. https://lnkd.in/g_FmegDF

New Post: Big, costly seed deals were the exception in 2023’s lackluster venture capital market - Hopes that it would become easier for startups to raise capital in 2023 were left unmet as the year ended. The Exchange explores startups, markets and money. Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday. New data from business database PitchBook paints a modestly dim picture of venture capital investment activity in the fourth quarter of 2023. Per PitchBook’s preliminary count, startups in the U.S. raised 2,879 rounds worth about $37.5 billion in the fourth quarter — the lowest quarterly deal value since Q3 2019, and the lowest deal count since Q4 2017. Across stages, venture capital investment activity in the United States is flagging, and this extends past aggregate figures — for example, we saw less total capital invested in U.S. startups last year than in 2020. However, there is an interesting wrinkle in the data: We saw a decline in the number of seed deals, in keeping with the trend in the rest of the market, but it seems the youngest startups are generally faring better than everyone else. Observe: There was a decline in the median deal value between 2022 and 2023 for all startup fundraises Series A onwards, but 2023’s median deal value at the seed-stage matched the $3 million record set in 2022. (The average value of U.S. seed deals rose to $1.3 million last year, which we last saw happen in 2006.) #Big #costly #seed #deals #exception #2023s #lackluster #venture #capital #markethttps://lnkd.in/d2gNAHRs

Interesting take from Pitchbook - data demonstrates that venture backed deal count is still depressed vs. the heydays of 2021/2022 though on par with 2020. Meanwhile, the fact that there are 55,000 startups in the US demonstrates that there is a lot of innovation still out there.

An interesting article by Alex Wilhelm this week discusses the paradox of high seed-stage valuations in a contracting venture market. 💡 While the # of seed deals has decreased, they remain strong on a per-deal basis due to early-stage startups' rapid growth potential. 🤔 More mature tech firms have been swapping growth for profitability, but this hasn't made them more attractive. This dynamic makes seed deals expensive and less common. It means exceptional tech startups will benefit but challenges those with slower growth. 👉 Founders should carefully assess their reasons for seeking venture capital. Raising funds for the wrong reasons can harm a business. Venture capital should be seen as a growth accelerator, not a solution to underlying issues. #startups #entrepreneur #vc #founders

Rounds with $100M raised are now rare across venture - why should we care? First, the stats. Across all startups on Carta, there were 157 rounds of $100M or more raised in Q4 2021. That number for Q3 2023 was 13 - not awesome. Btw, there are many more companies on Carta now than in 2019—so the percentage of mega-rounds is even smaller. Now I can hear many of you offering good reasons why this a welcome change or perhaps a "return to normal". Yes—things got too hot in 2021, the number of major rounds was unreasonable, and we shouldn't necessarily even want to return to that fever pitch anytime soon. But early-stage startups are impacted by the lack of these mega-rounds in a myriad of ways. 𝟭) 𝗨𝗻𝘂𝘀𝗲𝗱 𝗗𝗿𝘆 𝗣𝗼𝘄𝗱𝗲𝗿 By some estimates, there is around $250 billion in committed capital just waiting to be deployed into startups. Well, you can't deploy that level of firepower into seed-stage companies. The math just doesn't work. You need large, late-stage rounds to be happening at a healthier pace in order for that dry capital to become working capital. 𝟮) 𝗙𝗼𝗹𝗹𝗼𝘄-𝗢𝗻 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 VCs at the early stages are making calculated bets on companies and founders, sure. But they are also taking into account the market potential for various sectors. If a part of the venture market is missing (eg. growth rounds) for a specific industry, early investors will be less likely to take bets on companies in that industry. DTC is a perfect example. Some may say (and in this instance I agree) that most DTC businesses shouldn't be taking venture capital in the first place. But there's no denying that a lack of growth capital hinders even early stage startups in a given sector. 𝟯) 𝗘𝘃𝗲𝗻𝘁𝘂𝗮𝗹 𝗜𝗣𝗢𝘀 I recently took a look at the rounds raised by companies who went on to IPO from the Carta dataset. 46% of eventual IPO companies had a round of at least $75 million in their history (about 30% had a $100M round). Major late-stage rounds are a pretty good sign of becoming a player in the public markets - seems obvious. The lack of exits in today's climate are putting a cap on venture as whole and these mega-rounds returning may signal the impending return of useful IPOs (or maybe vice-versa). It's possible that the structure of VC is changing so much that mega-rounds like these will become dinosaurs as companies take in less outside capital and fund growth through profits more frequently. But achieving venture-scale outcomes without a lot of cash still strikes me as a remote possibility. Rooting for the return of the mega-round! #cartadata #venturecapital #startups #founders #fundraising #megaround  

An M&A rollup strategy for "delayed" IPO candidates approaching VC exit deadlines would allow a milder exit (lower multiple than the IPO home run hit - a little haircut nothing too drastic) AND would be good value shopping for the acquiring company or Funds or Family Offices. Musical chairs in a sense - with a twist! ++++ I am consulting on and involved in preparing some innovative LBO hybrid models for some vertical HOLD COS for a buying spree over the next few years. For the existing owners of the acquired company, think of it like a restful layover or pit stop on the journey or a detour before you reach your destination. The funding models are the key. Exciting times ahead. ++++ Excellent post on this space from Peter Walker

Rounds with $100M raised are now rare across venture - why should we care? #startup  #fundraising  #angelinvestor  #investments  #VentureCapital  #vc #Entrepreneurship  #venturefunding  #investing #TechNews #Innovation #technology https://lnkd.in/eVWZp3kd

Why we need Mega rounds (100M+) ? 1. If capital isn’t directed to funding large growth capital rounds, then further dry powder would not be added to the system - why bother if cash lies in the bank and isn’t deployed into a startups working capital 2. Emergence of Venture Debt and other non-equity instruments: money is fungible, but equity is the most expensive way to raise money. Given the choice, Founders would much rather raise debt than give up equity. 3. Sentiment & exit potential: large rounds provide outs for early stage investors, an ability for them to realize returns. If an industry isn’t able to raise large rounds, it’s not likely to list on public equity markets. Investors will eventually stop funding the early stage of that industry. Many thanks to Peter Walker & Carta : what is especially interesting is that the number of $100M rounds is lower than even 2019. Times are tough and capital seems scarce. MAGNiTT