Today’s venture capital market feels strange because it isn’t uniform. While some companies are still able to raise mega-rounds, reach unicorn status, and even attract lots of new capital in sectors that have seen their exits struggle on the public markets, other startups are not having similar luck.
After several years in which capital flowed freely and the entire venture capital ecosystem and startup market marched in lockstep toward bigger, faster rounds at new, higher prices, we’re in a more mixed environment today. This has made reporting on Q2 venture capital totals a bit tricky; Yes, for example, fintech venture totals are falling, but they remain above 2020 levels. Is that bad or good?
To better understand where the venture market actually stands today, we’ve pulled in a new dataset, this time from DocSend (former unicorn Dropbox bought the company in 2021). DocSend is best known as a software service that helps founders create and share their pitch decks with investors. As a result, it has a wealth of data concerning both founder and investor activity. The aggregated behavior of both sides of the investing table when it comes to startup funding is incredibly useful and paints a picture of a venture market diverging — but not as fast as we might have anticipated. There’s some good-ish news to be found.
(If you are fashioning a pitch deck — or wondering what one looks like — our pitch deck teardown series should be your jam!)
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The divergence between founders and investors that we’ll detail below is not good news in gross terms. However, when we compare the data to the doom and gloom we’ve heard from some founders, the information is nearly encouraging. Not great, but not terrible either. Let’s talk about it.
What the quarterly data says
What DocSend shared with the market this week is a variety of data points concerning pitch decks. From its dataset, we can see directional changes in the numbers of decks created, how many times those decks were interacted with and how long investors spent looking at them.
This allows us to understand that in Q2 2022, the number of deck links that founders sent out fell 4.9% compared with the first quarter of the year. This implies that founders were pulling back on outreach, though it’s hard to parse whether this is due to entrepreneurs merely constraining their target investor group or more founders not fundraising at all.
On the investor side of the table, pitch deck interactions fell 12.1% from Q1 to Q2 2022, a far steeper drop than what we saw from founders. From the first quarter to the second, then, we can say with confidence that founders posted a very mild retreat in fundraising efforts, while investor interest fell more sharply.
This implies a widening disconnect between founder hopes and investor activity.
When we compare Q2 data against the second quarter of 2021, we find a similar narrative. Compared to the year-ago quarter, founder links were up 10.9%, while investor activity with pitch decks fell 7.2%. This is an even clearer disparity between folks wanting money and the interest of the investing classes in providing that capital.
Founders are more active than investors overall, and more active than they were a year ago in sending out pitch decks. Venture investors, however, are not only slowing their efforts compared to the year-ago period but also stacked up against the first quarter of 2021. It’s harder to raise out there. It’s not just your imagination.
Now, let’s look at year-to-date data to get a better feel for how 2022 has performed through June.
2022 so far
Quarterly variations are interesting to look at, but longer periods sometimes give us a better sense of what’s happening. For instance, DocSend data shows that in the first 24 weeks of the year, the platform recorded slightly more pitch deck interactions (2.3%) than during the same period in 2021. Time spent reviewing decks has varied in the opposite direction, but again, only slightly. In other words, investor interest in pitch decks has remained stable.
This is where the not-so-good news begins. Over the first six months of the year, founder links were up 13.6% compared to the first half of 2021. In other words, and despite the small decline in Q2, founders did send more decks than in the same period last year — and that increase is much greater than the minor rise in investor interest.
What we have here is a widened imbalance between founders and investors. Or, in DocSend’s words, “a gap between supply and demand of approximately 16%.”
The fact that founders sent more decks in the first months of 2022 than in 2021 might surprise you. If you thought startups had hit pause on fundraising until better days — which is what some of them are saying publicly — you’d be wrong. That only works if you have cash — hence the posturing.
For many startups, the truth is that liquidity has become a major concern. Not always because they are running out of cash — yet. After all, many raised significant amounts of funding in 2021. But if their plan was to raise more funding in the second half of the year, they might be reconsidering and accelerating their timeline.
Raising funding sooner than later is also in line with the advice Y Combinator gave its portfolio companies: “For those who don’t have the runway to ‘reach default alive,'” TechCrunch’s Manish Singh reported, “YC is strongly suggesting that they consider raising money.”
“If your plan is to raise money in the next 6-12 months,” YC’s “Economic Downturn” letter said, “you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan.”
But changed plans weren’t necessarily received with cheers by VCs. Instead, TechCrunch reporter Becca Szkutak found out, “despite the venture capital asset class sitting on historic levels of dry powder, many investors aren’t deploying it, leaving their portfolio companies scrambling for financing.”
This is a painful paradox for founders. Again, venture capitalists have never had so much spare cash. The very same cash that could save startups from the same fate as Pakistan-based Airlift. The quick commerce startup raised an $85 million Series B funding round in August at a valuation of $275 million. Now, it’s ceasing operations after attempting and failing to put together a new financing round.
The perspective of running out of cash, and therefore dying, is obviously not very appealing to founders — and this realization makes them scramble to raise before it’s too late or market conditions worsen.
To end on a slightly less pessimistic note, there’s another factor that pushes more startups to raise: M&As. Indeed, we are hearing scaleups being advised to raise capital to spend on acquisitions. Why? Because it might be a good time for bargains, as smaller competitors, for instance, might be struggling. Will this result in a rise in M&As? We’ll definitely be watching.