From total dollars and funds to deal sizes and valuations, nearly everything in the venture capital sector is up. With $100 billion raised by venture capital funds in 2021, more capital has poured into the sector than at any other time in history. In other words, 2021 was a record-smashing year for startups and VCs alike.
A few weeks ago, I joined Anu Hariharan, Partner at Y Combinator, Katie Thiry, Principal at Salesforce Ventures, Kat Cole, President and COO of Athletic Greens, and Noah Lichtenstein, Founding and Managing Partner at Crossover VC, in collaboration with Brex, to talk about what these trends mean for the venture landscape.
Here, I share my three takeaways for early founders looking to raise capital in 2022.
Yes, it’s a founder’s market. No, that doesn’t mean you’ll raise money
All the signs point to a founder-friendly market and to date, our research agrees. From the last quarter to this quarter, investor activity in pitch decks jumped 21%, up 60% percent year-over-year (YOY). Comparatively, founder activity rose just 10% quarter-over-quarter, coming in at about a 40% increase YOY.
More capital chasing fewer deals means it’s never been a better time to be a founder, but that doesn’t mean they can hit the easy button. The time investors spend on pitch decks continues to decline, recently hitting an all-time low of two-and-a-half minutes. We see investors getting to page four or five of a deck, without bothering to finish the rest.
So while it’s a great time to raise capital, investors have never been looking at so many deals before either—and in competitive landscapes, they look at every opportunity with additional scrutiny.
As Katie pointed out…
“The frequency of rounds is really increasing. We see valuations increase 2x in between rounds and within three months. It’s been challenging to think ‘Are we putting capital to work at this valuation and are we comfortable with the exit opportunities or not?’ It’s really top of mind for a lot of VCs.” —Katie Thiry, Principal at Salesforce Ventures
Bottom line? Fundraising has a quality bar. This isn’t a market where everyone gets to raise just because they’re out there. You still need to nail your pitch, send your decks to more investors, and convince people you’re worth investing in.Fundraising has a quality bar. This isn’t a market where everyone gets to raise just because they’re out there. Click To Tweet
If your narrative isn’t clear today, it won’t be tomorrow either
The biggest mistake I see first-time founders make is overcomplicating their narratives. Rather than making them sound smarter or impressing investors, it does the opposite. It muddies the water, getting in the way of what they’re doing and more importantly, why they’re doing it.
If your narrative isn’t clear today, it won’t be tomorrow either. In markets where money is being thrown around, investors see so many pitch decks they can quickly suss out ones worth exploring. Even if you don’t have any data points yet, a clear narrative will tell people the direction you’re going in, as outlined in this video.
Kat summed it up perfectly…
Fundraising is a new muscle for almost everyone. The more you can work on your ability to quickly share a story—to talk about a person, the journey, the problem, the solution, and the emotion pulled forward—it will help you immensely, even at the earliest stages.”
—Kat Cole, President and COO of Athletic Greens
Capturing investor interest begins and ends with your narrative. Your pitch needs to convince investors why your idea is a venture-scale opportunity. Following a structured format can greatly help your narrative flow.
When it comes to fundraising, resist early temptations
The thought of raising money for the first time is terrifying and overwhelming. I understand why founders early in the process are tempted to raise at a leisurely pace. They can test their pitch here and there. Take a meeting with an investor this week and then maybe another the following week.
But doing this only sets you up for failure.
Here’s why: First, you could end up getting an offer really early, but it’s not the best terms or from the person you want. Pressured to take the offer, and without time to take more meetings, a lot of founders accept offers that aren’t nearly as good as they could have been. Second, you could drag fundraising out for way too long, which keeps you from getting back to building your company.
To avoid both scenarios, I recommend adhering to two best practices. First, practice your pitch to perfection. Then, do all your fundraising within a two-week timeframe.
- Get your pitch down before fundraising. Test out your narrative on anyone you can. Start with your parents. It needs to make sense—even to them—because you can’t assume any industry knowledge on the part of the investor. You can even consider pitching it to later-stage investors who can’t invest because you’re too early. These are people (and programs) who’ll be motivated to give you real, constructive feedback for a compelling story.
- Fundraise with the right mentality. With your pitch nailed down and your list of investors in hand, go into fundraising focused on getting to know as many investors as you can, fast. Block two weeks to plow through as many meetings as you can.
- If it’s a no, go back to working on your pitch and then try again in three months.
- If it’s a yes, you have time to collect offers from the market, feel good about the terms, and pick the investor that best fits your personal journey.
There’s never been a better time to be a founder
Wrapping up a phenomenal year for the venture landscape, continued momentum is expected for the year ahead. As Anu shared:
“There might be corrections here and there, but I believe these trends are here to stay.”
—Anu Hariharan, Partner at Y Combinator
Pointing to the tech industry as an example, she noted how we’ve only begun to scratch the surface across industries such as retail, e-commerce, and fintech.
I couldn’t agree more. It’s been a banner year for startups and VCs, and I’m excited to see what’s in store for 2022. There’s never been a better time to be a founder.
If you want to hear the most interesting and useful insights gained from the discussion, watch the full event recording on Brex’s blog.