Welcome to the Series B crunch

创业投资 2016-04-19

In January I wrote a post prognosticating an end of “pricing to perfection” in 2016. We now have a quarter behind us in 2016, so was the prediction merited? Spoiler alert: enter the Series B “crunch”. Below are quick takeaways followed by a detailed data story. These trends are recent, so we’ll see how they hold up, but for now they are central to fundraising discussions we are having with our portfolio. While every investor and startup should be “heads down” building their company(ies) most of the time, financing context matters for growth.

High level trends: Flight to quality and experience moves the crunch from Series A to B

Series Seedpricing and dollar volume are healthy. Early stage VCs continue to take risk and back exciting teams, stories and traction! However, the number of Seed deals has dropped by half from its peak in 2014 – perhaps indicating a “flight to quality”. With a relatively constant dollar volume, there are also more $ per seed deal (the average seed deal going from $700K to $1.6M in size in three years). It seems investors are still comfortable with seed stage risk but are making fewer bets with larger rounds, perhaps on more experienced teams or perhaps because they want to extend runway in expectations of thinner capital markets to come. We see this in our own behavior in our Fund II vs Fund I, already having backed four very experienced seed-stage teams in the first 9 months of Fund II. Three of these teams have near-unicorn exits behind them. (Let’s hope they do it again!)

Series Apricing and dollar volume are also healthy. Unlike seed, however, Series A deals and dollars per deal remain steady too. Adding this to the Seed observations above, overall early stage venture appears to be pretty healthy.

What this means for getting from Seed to A:Fewer seed deals + constant number of Series A deals = the Series A is being un-crunched . While we don’t see this trend locally in the Midwest, nationally the past trend of seed deal proliferation against a constant number of Series As is reversing. This should be good for funded Seed companies seeking Series A, though raising a Seed to start with may be harder.

Series Bdollar volume and pricing are down 30 to 50%. Wow. Number of deals is also slightly down, but the net effect is smaller, lower-priced Series Bs.

What this means for getting from A to B:Welcome to the Series B crunch. Take advantage of the still-healthy Series A market and raise a nice sized round, but beware of too-high Series A valuations as Series B prices drop. While getting stuck upside-down on valuation is part of the startup/venture game when things don’t go well, it is a crying shame when valuations get upside-down on high performing startups. This is a big risk in the current environment. Over the coming quarters, I would also expect the increasing pressure between Series A and B valuations, to put back pressure on Series A valuations as Series A investors’ forward expectations adjust.

Series Cdollar volume and pricing are UP while number of deals is steady! Wuh, why the so different from Series B? This is a flight to quality. The larger, later-stage venture growth funds who were experimenting with more risk (at Series B) are getting back to their Series C knitting.

What this means for getting from B to C:If you make it through the B crunch, you may be in luck if you keep executing. There is lots of capital out there looking for de-risked deals… again, a flight to quality.

Series D and beyondvaluations and number of deals are down 30 to 40%, though round size has remained relatively constant. This is a sign that recent entrants into late stage growth financing – including hedge funds, mutual funds and sovereign wealth – are pulling back. Of course, down rounding of unicorns over the last year is well tracked .

What this means for getting to D and beyond:Growth at scale may be more dependent on reaching profitability – or a clear path to profitability – than in the past, while pre-exit liquidity will be less available for founders and early investor. Back to the long game.

The details: marked change in venture data over the past 3 to 6 months

Valuations flattening or dropping (mostly):After the run-up in this decade, Series B and D valuations are markedly starting to drop. Series C is continuing up, however, while Seed and A have flattened. This is the Series B crunch and the Series C flight to quality. The charts below are for CA, NY and MA, to accentuate the trends where prices have been most run up… and where the correction is now most prevalent.

Source: Pitchbook for CA, NY and MA, non-healthcare

Looking at Series B and D in detail below, the correction is precipitous, especially for the 75% percentile. Crazy valuations are going away, squeezing the right-skewed distribution, though medians are down too.

Source: Pitchbook for CA, NY and MA, non-healthcare

Source: Pitchbook for CA, NY and MA, non-healthcare

Valuation changes driven by capital supply changes

While overall capital deployment vs Q3 2015 is only down 12% from $11.3B to $10B, certain capital stages demonstrate large deviations from this. Series B deployment is down 30% while Series C is up 60%!

Source: Pitchbook for all US, non-healthcare Note: Trend is somewhat accentuated by Magic Leap’s $800M “Series C” financing, but is still meaningful with Magic Leap mock re-allocated to D and E.

This dollar volume shift explains dropping prices in Series B and D, steady prices in Series Seed and A and upward prices in C. Dollar volumes largely drive prices (assuming no major changes in demand). For those who like really really detailed charts and who are wondering about seasonality in the trends above, see the bonus chart at the end of this post. Same conclusions as above.

Deal counts:Deal velocity is down overall versus the peak in 2014 with significant 30% and 50% drops respectively for Series D and Seed. A, B and C are down only slightly overall. The chart below shows quarterly indexed deal counts by series versus the three year average.

Source: Pitchbook for all US, non-healthcare

Marrying the above deal counts with dollar volumes, we see Seed round sizes continue to climb – again, my hypothesis is a mini flight to quality with money concentrating on experienced teams with more runway. Series A round sizes are flat, C continues upward, while B is down 31%. It is a log chart, so the tailing down in B is bigger than it looks! Yikes.

Source: Pitchbook for all US, non-healthcare

Bonus chart:This is the time series version of the series capital flows chart above. It shows 2016 Q1 capital deployment versus prior quarters. Generally versus the past year of quarters, C is up, B and D are down and Seed and A are flat. Also notice that total capital deployment appears to be dropping, even when considering seasonality (Q1 vs Q1).

Source: Pitchbook for all US, non-healthcare

责编内容by:vcwithme (源链)。感谢您的支持!


小镇青年求职图鉴丨钛媒体《在线》 【钛媒体影像栏目《在线》,力图准确记录互联网时代的个体。图文、视频版权为钛媒体所有,未经许可禁止转载、使用,否则追究法律责任。】 (视频...
摩拜和ofo会合并吗?马化腾朱啸虎说了都不算,他说了才算!... 摩拜和ofo合并指日可待? 来源:创业那些坑(ID:naxiekeng) 创投圈很早就流行着一句话:C轮死,D轮合。 6...
独家确认丨西少爷再分家!合伙人袁泽陆疑套现2000万离开... 今日,亿欧接到独家爆料称, 西少爷联合创始人袁泽陆因与创始人孟兵在特许加盟的事情上发生分歧,已套现2000万元离开。 亿欧向西少爷方求证,...
Intuit launches QuickBooks Capital, a small busine... Intuit , the company behind products like QuickBooks and TurboTax, is gettin...
【链得得吐槽大会第四期】滴水不漏的公信宝黄敏强实录... 链得得《无眠吐槽大会》是一档聚焦区块链领域的高质量吐槽节目。每一期将针对区块链领域较为热门的项目/话题/现象,邀请项目负责人/话题当事人做客现场,和社群...