179. Follow Ons Part 2: Everything Takes Longer

VC Minute
The time between startup fundraises has grown significantly. Additionally, the time between venture fund vintages has also grown, resulting in a slowdown of capital deployment. All while venture funds buoy the healthy companies in their portfolio with follow-on capital.

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Continuing with the follow-up discussion… The next important piece of data is that the time between fundraises for startups is growing. Especially noticeable is the time from Seed to Series A. It used to be that you would raise a Seed round and then you would raise a Series A somewhere in 18, maybe up to 24 months. According to Carta, the average time from a price to seed to a series right now is 28 months, and that trend has been increasing, I could see that number realistically going up to 30 months. And in your last fundraiser, you may not have planned for this. You should be acutely aware of this lengthening of the seed phase at this point, but in case you weren’t aware, 1) it’s going to take you longer to run a fundraising process, and 2) you’re expected to make that capital last longer.

And if that wasn’t enough doom and gloom for you, you know, what’s also growing? The time between venture fund vintages. This means that venture funds are not raising as quickly as they used to, which means that they are deploying at a slower pace. This is especially true for seed funds and for emerging managers. The slowdown in the deployment of capital is something I’ve been talking about for the last two years. And it has really come home to roost right now.

The last piece that I have for you today is purely anecdotal; however, it’s something that we’re seeing on the market. Seed funds are feeling the pain of markdowns, shutdowns, and getting crammed down, while their once high-flying investments are going to zero. The way that I perceive this is that the psychological effect is like getting slapped in the face or punched in the gut. What happens? You have a fight-or-flight reaction to that! The flight piece is a flight to quality, where venture funds are looking for additional validation. They are raising their own bar for what they’re going to invest in. The fight piece of this is the fight of the market. And this is where investors are buoying their own portfolios with additional follow-on capital.

And look, there’s a part of this that is absolutely genuine. These are the companies that are doing well. They’re the companies that you want to see move forward, and you want to see them turn over another card, and you want to see them continue with the good work they’re doing. This is part of the job of a venture fund, and especially so for a seed fund. However, when you bring all these pieces together, there is something that I’m worried about coming into the market. And we’ll talk about that tomorrow.

About AVL Growth Partners
AVL Growth Partners, founded in 2009, is the leading fractional Finance and Accounting firm supporting organizations in pivoting from growth to scale. AVL brings an experienced team of CFOs, Controllers, and Accountants to your organization, delivering transparent, strategic actions for short and long-term success. Transform your financial approach affordably with AVL, supporting companies coast to coast – get to know AVL Growth Partners at avlgrowth.com. (Sponsored)

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