I'm trying to find a report on what percentage of early rounds (Seed and A) are used, on average, for new hires. I don't mean founder salaries. But for example, if you raised a $ 500K Seed round, how much would be used to hire/staff up?
I'm striking out finding a clear data point to identify some kind of average. Does anyone on this subreddit have an idea of that average percentage or where I could look?
Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe and Trulia. Follow him here: @rheddleston and @docsend
For many startups looking to secure funds, the fundraising marketplace has been a bit of a roller coaster. While there are signs that should make founders feel very optimistic (more on that here), it’s important to know how we got to this point.
We’ve used data from the 2020 DocSend Startup Index to track three major metrics to show us real-time trends in the fundraising marketplace. Using aggregate and anonymous data pulled from thousands of pitch deck interactions across the DocSend platform, we’re able to track the supply and demand in the marketplace, as well as the quality of pitch deck interactions.
The main two metrics we’ll be looking at are Pitch Deck Interest and Founder Links Created. Pitch Deck Interest is measured by the average number of pitch deck interactions for each founder happening on our platform per week, and is a great proxy for demand. Founder Links Created is how many unique links a founder is creating to their deck each week; because each person you send a document to in DocSend gets a unique link, we can use this as a proxy for demand by looking at how many investors a founder is sending their deck to.
When looking at what’s happened so far this year, we can potentially see where the marketplace is headed.
January and February were off to a roaring start
We all know 2018 was a great year for startup fundraising. And that can be seen in how many pitch decks were being consumed per founder across our platform. In fact, Q1 of 2018 posted nine of the highest weekly totals in all of 2018 and 2019. Investors’ demand was high and there was a lot of capital to deploy. But while 2020 didn’t come out of the gate as strong, demand started gaining momentum by February. In fact, the week of February 10th actually surpassed the demand in the same week of 2018 and was a whopping 19% ahead of 2019.
But the fundraising market isn’t a one-way street, there needs to be a steady supply of pitch decks being sent by founders to meet investor demand. During Q1 of 2018, founders were conservative in sending out their pitch decks (it might not be a coincidence that this is when we started to see a lot of “mega rounds,” as there was far less supply than there was demand). However, founders started courting far more investors in 2019, generating more interest and competition for their companies. We saw a huge jump in links created in the first two months of 2020 and it peaked at a 41% increase year-over-year during the week of January 27. According to the data, 2020 was on pace to match the fundraising activity of 2018.
When things ground to a halt
While it’s clear the trend was moving toward another blockbuster year for fundraising, we’ll never know what was going to happen. We saw the first drop in investor interest in the week of February 24th, just as people were becoming more aware of the very real threat of COVID-19. In fact, founder activity actually started to decline the week of February 17th. While the first two weeks of March saw the beginnings of the market shift (the first two weeks of March dropped nearly 12% as compared to the first two weeks of February), the week of March 16th is when we saw the major drop.
The week of March 16th saw pitch deck interest down more than 20% and links created down more than 21% from their 2020 height in February. This is also the week many places adopted shelter-in-place or other social-distancing orders. It was also when the economic impact began to affect many companies, with VCs spending more time with their portfolio companies as the COVID-19 crisis intensified. In fact, the top four worst days of 2020 for Pitch Deck Interest (other than in the first week of January) were: March 19th, 6th, 12th and 20th.
What April can tell us about finding a new normal
After the initial decline in March, founders and VCs both bounced back fairly quickly. In fact, the next week VC interest increased 10% while the number of Founder Links Created increased by 12%. However, for the following few weeks the number of links created by founders either stayed flat or dropped. But that isn’t the case for VCs. Demand for pitch decks rose steadily all the way through the week of April 20th, which was 25% up year-over-year. In fact, seven of the top 10 best days for Pitch Deck Interest in 2020 were in the month of April.
There could be many reasons founders aren’t sending their decks out with the fervor they were in January and February. Many are adjusting their business models and plans to account for the new environment, some are concerned they may be asked to change their valuation or ask and still others are working with their current investors rather than seeking more outside capital.
What we do know is that investor interest was on par earlier this year to outpace 2018, and investors only took a brief pause to adjust in March when the pandemic hit. That means there is just as much capital ready to deploy, and just as much investor interest as there was earlier this year. However, founders are still adjusting to the new market conditions. This means the fundraising marketplace is starting to look very much like it did in early 2018, with investor interest high, but founders supply not quite meeting the demand. This is good news for founders, as some of their fears of less favorable terms may not actually be a reality.
The next phase for founders
There are many reasons to be optimistic about what the next few months will bring for founders (more on that here). We update our Pitch Deck Interest metrics every week on Mondays, so you can get a real-time view of what’s happening in the fundraising marketplace. And while investor interest can seem theoretical, we’ve put together an Active VC List to show which investors are taking meetings and writing term sheets. While the companies receiving funding now might be different than they were just a few months ago, it still looks like a blockbuster year in terms of investors looking to make deals.
Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe and Trulia. Follow him here: @rheddleston and @docsend
While many areas of the economy are set to reopen in the coming weeks — if they’re not already — most startups never actually closed. Tucked away in houses and apartments across the country, founders have been not only focused on running their businesses, but also on securing capital to boost growth once the economy has normalized.
For the most part, the fundraising marketplace has remained open (for a deep dive into VC behavior over the last two months go here). But the last two weeks could be establishing a new normal for fundraising this year that should make founders optimistic. Even though most VCs aren’t taking in-person meetings, and there are still a lot of questions about what our economy will look like in the coming months, VCs are more active this month than they were in May of both 2019 and 2018.
We’re using the 2020 DocSend Startup Index to track three major metrics to show us real-time trends in the fundraising marketplace. Using aggregate and anonymous data pulled from thousands of pitch deck interactions across the DocSend platform, we’re able to track the supply and demand in the marketplace, as well as the quality of pitch deck interactions.
VC interest is at a two-year high
We’re tracking pitch deck interactions across our platform on a weekly basis to compare how VCs are operating today against a backdrop of the last two years. One of the main metrics we look at is pitch deck demand, as measured by the average number of pitch deck interactions for each founder happening on our platform right now.
While VC interest took a dive in March (more on that here), the last two weeks have shown unseasonably high interest. Typically, May signals the beginning of the summer slowdown, which bottoms out around August. However, in the last two weeks, we’ve seen VC interest on average 21% higher than in the previous two years.
While VC interest is high, it’s possible we’re just seeing a displacement of the typical demand we see in the spring, and that the summer dip is still coming. However, the other metrics we’re tracking lead us to believe that we’re going to sustain this growth for at least the rest of May and potentially well into June.
If you’re a startup founder, you’ll know that fundraising takes time, emails, calls and …more emails. And that’s without a global pandemic to contend with. Right now, founders are additionally fighting uncertainty, lack of information and an inability to travel freely to meet and present to potential investors.
To help move things along swiftly, there’s a cool online event that you might want to check out. Fund Fast Friday is (aside from a killer alliteration) a free virtual 1-day event to help founders fundraise quickly and without the fuss. Organised by Peak Capital, this venture capital firm is offering you the chance to meet and talk to their most important partners who are ready to find their next investment project. A nice opportunity if there ever was one!
The idea is simple: skip the back and forth. Talk face-to-face with potential investors from the get-go. Get immediate feedback. Fast track the process.
The individual sessions will be held on Friday, May 15th, which is just a few days away. Interested in participating? See if you meet the following criteria:
Seed or Series A stage
Marketplace, platform, or SaaS business
Based in Europe (Germany, Nordics, Benelux and also Europe-wide)
Byju’s, an education learning startup in India that has seen a surge in its popularity in recent weeks amid the coronavirus outbreak, is in talks to raise as much as $ 400 million in fresh capital at a $ 10 billion valuation, said three people familiar with the matter.
That investment by the two firms, though, was at an $ 8 billion valuation, said people familiar with the matter. Byju’s was valued at $ 5.75 billion in July last year, when it raised $ 150 million from Qatar Investment Authority and Owl Ventures.
The talks haven’t finalized yet and terms could change, said one of the aforementioned people. This person, along with the other two, requested anonymity as the matter is private.
Spokespeople of Byju’s and Prosus Ventures, the largest investor in the startup, declined to comment. A spokesperson for Tiger Global did not respond to a request for comment.
Byju’s has seen a sharp surge in both its free users and paying customers in recent weeks as it looks to court students who are stuck at home because of the nationwide lockdown New Delhi ordered in late March.
The startup told TechCrunch last month that traffic on its app and website was up 150% in March and it added six million students to the platform during the month.
Other edtech startups, including Unacademy, which was recently backed by Facebook, and early-stage startups such as Sequoia Capital India-backed Classplus, and Chennai-based SKILL-LYNC, have also seen growth in recent weeks, they told TechCrunch last month.
Through its app, tutors on Byju’s help all school-going children understand complex subjects using real-life objects such as pizza and cake. The app also prepares students who are pursuing undergraduate and graduate-level courses.
Over the years, Byju’s has invested in tweaking the English accents in its app and adapted to different education systems. It had amassed more than 35 million registered users, about 2.4 million of which are paid customers as of late last year.
Startup founders who are fundraising in this climate should expect venture investors to take a huge chunk out of their valuation expectations.
“What we’re seeing across the board is discounts,” says Mike Janke, co-founder of early-stage cybersecurity investment firm Datatribe.
Investors are still committing to new deals, he says, but they’re adding new terms and demanding lower valuations from companies as the cost of raising capital during the downturn. Janke, whose firm has several deals in the pipeline, says entrepreneurs should expect VCs to demand concessions like more frequent board meetings and large price cuts compared to what they’d previously seen.
“If you look at 2000 and 2008, venture always views [downturns] as the time to get good deals,” Janke says. “We’re looking at a 15% to 25% discount to do deals.”
In one instance, a company that turned down a $ 900 million acquisition offer is now in the process of raising a new round at a $ 500 million valuation, he says. “In 2019 it was just generally accepted that this company was worth over $ 1 billion.”
Deals are getting done, though. As the pandemic began to spread, Janke says most firms began triaging their portfolios to determine who would need to raise cash and who could remain afloat without an infusion. Now, firms are looking out and seeing what kind of opportunities there are in the broader market — if they can.
“Some of our peers in the Valley have up to 40% of their companies that need an infusion or some sort of bridge to get through,” says Janke. “These companies that had higher valuations that came out of the Valley have had to do more drastic cuts.” Startups that raised cash in markets outside the Bay Area have not had as much difficulty, he says, because they’re more efficient.
Have any startup founders here been through fundraising efforts – early stage/ pre-seed/ angel investment, in the recent time or going through the process presently? What have been your experiences? What seems to work? What doesn't?
Does this change if you are in Silicon Valley or Europe or India or Israel or anywhere else?
Fundraising right now is a sore topic for many startups, with questions arising about jittery investors and founders uncertain of how to coax the horse back to the stable.
Enter Neufund, the fundraising platform making blockchain-enabled fundraising a reality for every founder, no matter their background. Aiming to ‘democratise’ this kind of funding, and present it in a more easy-to-understand and human way, startups don’t need to be tech savvy to get involved.
If your interest is peaked, then keep reading our interview with co-founder Zoe to find out how startups can digitise their shares, why you don’t have to be a qualified investor to invest, why now more than even investors are looking for impact-driven startups, and her tips for startups on weathering the pandemic.
Thank you for joining us Zoe! We’re excited to learn from your experience at Neufund. Let’s start with your mission: to democratize access to capital for innovators and entrepreneurs. Could you expand?
Thank you for having me!
The classical investment process has limitations for both entrepreneurs and investors. I’m sure many startups may share lots of stories, about how hard it can be to find proper partners, and close the deal, especially now, in a crisis, when the demand for the capital grew significantly, and many companies are fighting for survival. Add costly legal support, time-consuming meetings, geography aspects – these are just a small part of the problem, which the entrepreneurs face. At the same time, a high financial barrier to entry creates an ecosystem that is available to a limited few.
We believe that anyone should have access to investing and fundraising, no matter where they live and what economic background or network of investors they have. Thanks to Neufund entrepreneurs can address venture capital, institutional and individual investors from across the globe and prepare their campaigns easily and quickly, in mostly automated ways. And you don’t have to be an accredited or qualified investor to enter the world of investments: fractional ownership enables us to represent one equity by a thousand tokens with a minimum investment ticket size as low as €10.
Two years ago, Neufund became the world’s first company to digitalize its equity and conduct a public offering. What’s special about the Force tokens?
In 2018 Neufund became the world’s first company to digitilize its equity. The FORCE (FTH) Token was the first fully compliant equity token issued under German jurisdiction and represents equity in Fifth Force GmbH.
This first campaign has received overwhelming support from entrepreneurs, VCs and angel investors. For the first time in history we made it possible to invest in an easy way for such a variety of investors. It was our first experience, but we’ve managed to show the market not just the platform’s possibilities, but how the traditional investing might be changed, and how the principles of decentralised economics work.
So, for a startup that is not inherently based on a blockchain model, how would they issue their shares on Neufund, as ‘equity tokens’?
An Equity Token Offering is a novel way of fundraising, which allows any kind of company (blockchain-based or not) to digitise its shares and make a public or private placement. And you don’t need to be tech savvy – we made the fundraising process more human, and easier to set up for everyone.
Simple and intuitive forms will help you configure the offering depending on your company’s needs and requirements: you may enable voting rights for investors, set the soft and hard cap, define the minimum ticket size, and decide on the duration and phases of the fundraising — and much more.
How can venture capital funds take part in Neufund? How can the platform connect startups with VCs that might not have previously found them?
Neufund offerings enable companies to address all kinds of investors at the same time, including VCs. Our first fundraising campaign (Fifth Force) has attracted a diverse group of investors, including venture capitals like Atlantic Labs, Freigeist Capital, as well as angel investors. Later the first retail offering on our platform (Greyp bikes), showcased a way for companies to raise capital outside of traditional startup hubs. Altogether the campaign collected €1.4 million in funding from over 1000 investors, from 34 countries around the world. It proved that blockchain makes the future of finance possible today, investing can and should be accessible for everyone and we are moving in the right direction.
Given the current pandemic, many are expecting funding opportunities for startups to slow down. How do you see this playing out on Neufund? And is Neufund doing anything differently now?
A majority of startups have been impacted by the economic downturn and the market’s slowdown, which makes the need for alternative forms of fundraising even more pressing.
But we should think bigger. This unexpected pause showed us the problems which can not be unseen: the healthcare system cannot provide necessary protective equipment; small and medium-sized businesses are on the fighting for survival. We may see the problem of rising poverty, inaccessibility of education, and unemployment. At the same time, we see how simple steps, like reduced traffic immediately brought us to the cleaner air and water in seas, animals, which appeared in unexpected places (dolphins are back to Venice, coyotes on the Golden Gate Bridge).
Due to these changes, market players are also looking wider on financing now: the importance of impact-driven projects, businesses, which follow sustainable business models and aim solving the world’s most pressing problems, grew significantly. Further development of the solutions that will let such companies fundraise and connect with progressive investors is our main priority today. The entrepreneurs are the key power that would help to rebuild the world, and we are here to help them.
Do you have any fundraising tips for founders during this difficult time?
It’s hard enough to raise money when the global economy is healthy, so it’s no wonder that this crisis is causing startups to become jittery. At the same time, we all understand that for investors, the crisis might be the best time. The rates and valuations are lower than ever before, meanwhile many funds have committed, but unspent capital.
Many investors are choosing companies to support and invest, based on their ability to survive in the new, difficult economic situation. It’s vital to keep the objectives at the forefront of thinking, and at the same time to be flexible and get ready to reinvent and rethink your business, even if it brings you to the tough decisions. The strength of the teams and their leaders comes to the forefront now.
You should also remember, though, that VCs, for example, are now under pressure from their LPs, revising their portfolio and future strategy. It might lead to unexpected results: lower valuation or even rejection. Don’t put all your eggs in one basket; try to attract several interested investors and angels, try new ways of fundraising.
And finally: think of the impact that your company creates. The market is still obsessed with unicorns, but we now know how the world might be if we find a way to have a less deadly daily effect on the environment. Many investors are looking for sustainable and impact-driven companies, which are not just highly-profitable right now but aim at solving the world’s most pressing problems in the long term period.
Even though Neufund is reducing barriers for all, it’s also quite a tech-y topic. Is there any way to give founders from minority groups or from an unpriviledged background a helping hand, so they can access the benefits of a platform like Neufund?
We’re driven by the idea to democratize access to funding and use every vehicle possible to achieve that. We’ve automated the largest amount of legal paperwork, our user-friendly interface makes it easy to set up the campaign, tokenize (digitize) shares of the company, and address all kinds of investors at the same time, no matter where you are.
Our customer care, of course, walks the applied companies through the fundraising process in detail. We won’t send you to the chatbot if you need help and would provide you with full technical support.
What will the world look like next week? Next month? Next year? The answer is: nobody knows. The uncertainty makes long-term thinking precarious. But to make a smart investment, one needs to have confidence in the future. On the other side of the table, startups need to create a clear picture of their way forward if they want to raise funds. How do you go about that, in these volatile COVID-times? These Amsterdam-based startups closed a funding round during the COVID-outbreak. We asked for advice.
COVID’s threats and chances
Even though these are unprecedented times, there is still business to be done. Even though conferences are cancelled, travel is restricted and markets are disrupted, startups can still find investments. As dire as the situation may seem, it even offers some opportunities for extra funding. For instance Amsterdam-based early-stage VC firm Antler, which is offering €500,000 in funding for startups with a product to combat the spread of coronavirus.
Besides that, several startups from Amsterdam proved there’s still investments to be found. In the past couple of weeks, many of them signed with investors for funding that would ensure their growth, hopefully well beyond the reach of COVID.
These Dutch startups found funding during pandemic
Amsterdam-based Pyramid Analytics raised nearly €23 million to build strategic alliances around their analytics platform that helps companies compete as world-class data-driven organisations. Another startup from the tulip city, Kaizo scooped up €2.7 million to guide employees towards achieving their goals and making an impact in their companies. Yoho bagged €250,000 for their SaaS-platform with which companies can quickly create digital mobile workflows for production, quality, and maintenance teams to replace paper. And Lalaland, one more startup from Amsterdam that uses neural networks to generate images of artificial humans, raised funding at an undisclosed amount.
One of the bigger rounds in February was closed by Oaky, which created an automated upselling platform that helps hoteliers drive revenue by offering guests what they want. This Amsterdam-based startup was looking to use the money to invest in product development, continued geographic expansion, and team growth across all functional groups. But then COVID-19 hit, effectively grinding the travel industry to a halt. It made Oaky have a second look at their earnings and spendings, said Tako Paddenburg, one of the co-founders of Oaky: “We went over our budget again to see which investments will still bring us enough value now and which should be postponed until the market recovers. We decided to mainly focus on optimising our processes and improving our product.”
‘Buffer during uncertain times’
The fresh funding gives the startup breathing room to improve their product. “Even though we had different plans on spending the money, this gives us a great buffer during these uncertain times. We were lucky enough to raise our funding right before the COVID-19 outbreak in Europe,” says Paddenburg. Similar luck struck Chargetrip, which closed their funding round in February 2020, right before the virus brought Europe to a standstill. “The investment funds were also transferred in that same week. So we were really lucky in our timing,”says Chargetrip CCO Pieter Waller. His startup offers smart navigation for electric vehicles.
Their pre-seed funding ranged somewhere between €1 to €4 million, although they like to keep the exact number under wraps. For now, Chargetrip conducts ‘business as usual’, says Waller: “We believe that in the long run, the switch to e-mobility will still happen.” To prove his point, Chargetrip has moved to a large office, onboarded a new team member every week, and closed a new commercial deal the past few weeks, according to Waller.
‘Hunkered down scenario’
Despite still aiming for the expected growth scenario, Waller says they did look at different outcomes: “We also created a hunkered down scenario with a minimum expected revenue, reduced hiring plan, and maximum cost reduction. Both scenarios resulted in a similar runway. On the commercial side, we had some potential deals being put on hold, but we also had several new business discussions starting up. So the exact impact on Chargetrip is too difficult to tell for now.”
Meanwhile at Amsterdam-based Factris, they also see no reason to change their course after receiving a EU-grant of €1.4 million. Factris provides an online invoice factoring platform for European SMEs and despite COVID-19 they will use it as planned, says CEO Brian Reaves. “We are using the grant to develop the FAB (Finance Automation for Business) platform AI and have not changed our longer-term view on the grant. We are executing on our plans, and while recognizing the environment is difficult, it will eventually get better, and more importantly, SME businesses still need funding.”
Advise on raising during COVID-times
So raising funds right before or during a partial lockdown might still be possible. But what did the experience learn these entrepreneurs, that can help startups looking for investments right now? Reaves opines: “In raising funds, startups need to remember that VCs still need to deploy capital. Most VCs are now thinking about value investing, expecting the startup valuations will decline in the near term. The most important thing is to properly manage your cash position to make it through the next six months, after which we hope the economic situation will improve. Otherwise, keep trying to raise capital as there are a number of VCs funds, and they also compete for good deals.” Oaky’s Paddenrug adds: ” A funding process usually takes more than a year from start to finish. So we advise using this time to start conversations and build a strong network.”
“If we were still fundraising, time would be of the essence for us,” says Waller of Chargetrip. “Talks and discussions with investors can drag on for a long time. So I would be very focused and strict on timelines with investors. As a sign of their commitment, I would ask them to sign a letter of intent. So I could focus on finding additional investors for the round when they sign the LOI. Or close the discussion when they don’t sign the LOI and move on without having to look back.”
‘No time for bullshit’
“A second thing that I would focus on with investors is their interest in our long term value creation hypothesis,” says Waller. “Back and forth discussions on your precise expected MRR growth the coming months isn’t that relevant. Exploring the validity of your business model in a post COVID-19 world is. I think it is, or should be, apparent to everyone that there is no time for bullshit and that clarity about each other’s real intentions is the only way we as a startup, an investor, an ecosystem can move forward.”