July conversations: Valuations in recovery, Asia gets left behind, and “pro rata” funds
In this roundup, we've gathered the top insights for founders from July.
July was a polarizing month of winners and losers, with total deal value hitting an eight-quarter high despite Asia’s steep Q2 decline in early-stage funding.
In this roundup, we’ve trimmed the fat and pulled together the most impactful insights for founders from July.
Valuations recover as total deal value hits eight-quarter high
Catch up quick: Total deal value is currently sitting at an eight-quarter high with $55.6 billion invested, a sign the global venture capital market may have bottomed out last quarter.
Between the lines: While the market is in recovery and valuations are rebounding, the majority of ‘up rounds’ sit within a small group of high-growth startups, which still leaves middle-of-the-road startups fighting over crumbs.
The big picture: All signs suggest a gradual rebound is underway, but VCs are exercising caution so the road to funding may be bumpy.
Asia’s funding hits lowest level since 2015
Catch up quick: Despite a global venture funding recovery, Asia suffered its worst quarter for startup funding since 2015.
By the numbers:
Asia-based startups only raised $14.6 billion, a 24% decline from Q1.
1,511 funding deals were announced in Asia in Q2, a 15% drop from Q1 and a 27% drop from Q2 last year.
Early-stage dollar volume fell to $4.9 billion, a staggering 53% decline from the first quarter and a 39% dive year to year.
The bottom line: Startups looking for funding should consider alternative funding sources like crowdfunding, angel investors, and strategic partnerships to reduce dependency on traditional VC funding for greater stability.
“Despite a recovery in valuations… market is still tight for founders” —Jason Lemkin at SaaStr
What was said: Jason Lemkin took to the stage at SasStr Europe 2024 with advice on fundraising in a challenging VC market, approaching potential investors, and navigating conversations when tension is high and purse strings are tight.
Key takeaways:
As the market recovers, be more conservative with the amount of money you ask for, because every financial decision will have more scrutiny attached.
When it comes to classifying revenue streams and margins, be honest. Jason suggests breaking down each revenue category and being transparent about the composition.
Jason suggests that startups looking to raise funds should increase outreach volume and talk to more investors than initially planned — all while ensuring your pitch materials are tailored to each investor so everyone feels like they’re the top choice.
What do the new ‘pro rata’ fund trends mean for founders?
The intrigue: One of the latest trends in VC investing is funds dedicated to helping seed VCs exercise their pro rata rights. This trend is driven by the challenge smaller funds face in keeping up with high valuations and competitive later-stage investments.
Put simply: Pro rata rights entitle existing investors to keep their initial ownership percentage in subsequent financing rounds, even when new shares are issued in future equity raises. Without pro rata rights, they’ve really only got one shot on goal, and as a result can suffer a lot of dilution as the company continues to raise more capital in the future.
The bottom line: If you’re a founder taking money from seed-stage investors, remember it’s a very complex relationship. Pro rata rights can mean your original investors stay with you for the long haul, but it might also mean later-stage investors have less to gain.
Thanks for reading
We’ll be back in August with more industry trends, funding data, and news. See you there.
