I have been thinking a lot about silos, or the lack thereof, within startupland. There’s sometimes an artificial wall that is put up between companies at different stages of growth, when in reality, everyone is in the same room, clinking glasses and tripping over the same rug.
Let me be more precise. As the late-stage market has cooled down for tech companies, many early-stage investors say their portfolio companies aren’t too impacted because they’re years away from an exit and have enough capital to weather uncertainty. The same energy was on display this week at TechCrunch Early Stage. Stellation Capital’s Peter Boyce II coyly told me that, based on the term sheet he wrote yesterday, we’re still definitely in a founder-friendly market, while a pair of entrepreneurs not so subtly reminded me that experimental bets are still landing significant funding rounds.
I believe in optimism and think of this time in early-stage startups as a recorrection, not a reckoning. But, new PitchBook and NVCA data does show that dollars are changing across the board.
The latest report says that venture-backed companies attracted nearly $71 billion during Q1, behind in pace from every quarter in 2021 but still ahead of pre-pandemic totals. Digging more deeper into the seed stage, the research team reports that seed deal sizes are starting to look more toward historical norms than outsized absurdities (OK, OK I made that last part up). At the same time, valuations continue to grow with the median pre-money valuation at $12 million. A fun dichotomy investors have to pay a pretty penny for.
Speaking of investors, fundraising for VC firms kept the momentum of 2021 and raised $73.9 billion across 199 funds. Last year, VC funds closed $230 billion in new funds.
Put differently, we know that venture firms are changing how eager they are to deploy capital but aren’t shifting their appetite for raising money of their own. To me, this proves that the semblance of a silo between private and public tech companies will likely continue and it will be hard to discern how startups are being impacted beyond more explicit examples of layoffs or pivots.
One nuance that the report mentions later on is that a large portion of new money in VC is isolated to a few funds, meaning that the dry powder is only given to a select few decision-makers. That means that the insulation, or hopeful protection, that new capital will protect early-stage startups from an immediate slash in worth, isn’t true for every startup. To quote All Raise VP of marketing Caroline Caswell, “The narrative that ‘VC is back?’ … It is back for the same people as it was before.”
Maybe it’s not the hottest take in the world, but here it is anyways: It’s easy to confuse a silo and a semblance of one. You don’t need to be a web3 company to benefit from the growing mindshare around decentralization and alternative assets; just like you don’t need to be an angel investor to adopt the idea that your advice is worthy of equity in a company; and, as I’ve hopefully shown above, you don’t need to be a late-stage company to refocus on and prioritize profitability.