Nov 15, 2022
It's been a tough few years for venture capitalists. With the rise of private equity firms and the return of big companies to the fundraising game, VCs have had to fight for their share of investment dollars. But even as their share has fallen, VCs aren't giving up on startups — they're just looking at them differently than they used to.
Seed rounds are getting bigger
Seed rounds are getting bigger.
In 2019, the average seed round was $5 million, a larger than it was in 2018 ($4.7 million). This trend will likely continue into 2022 and 2023 as VCs are continuing to raise money for additional funds and follow on investment.
This increase is at face value is good thing for startups due to increased access to funding earlier on in their companies' lifecycle, which helps them grow faster, hire more employees and expand into new markets.
However, this trend also means that it's harder for investors to find investments that generate high returns on investment (ROI) as the COVID era has created more start up than ever before.
There are more VCs but they're investing less
The venture capital market is still robust, but it's not what it used to be. Venture capitalists are still investing in startups, but they're doing so at a lower rate than before. The number of VCs has increased over time and now stands at about 20000. However, the amount of money that VCs invest per year has declined since its peak in 2018, and projections indicate that this downward trend will continue into 2023.
Venture capital investments have become more concentrated toward later stages: growth equity funds and late stage venture capital funds account for more than 70% of all investment dollars. These later stage funds are also increasing their share further by investing earlier in their lifecycle while other investors such as angels continue to focus on seed-stage deals as they always have done (see chart).
Lots of companies are able to raise finance, but fewer than ever before
The venture capital market is currently very healthy. There are many new startups and existing companies that are able to raise finance, but not as much as they used to. The amount of money that can be raised by a company in one round has been decreasing steadily over the last several decades, but there are still some dramatic outliers such as Apple’s $1 billion Series A investment in 1983. In general, though, it seems like founders aren't able to raise as much money for their businesses than they used to—and this trend will likely continue into 2023.
It's also worth noting that companies are raising money faster than ever before: In 2016 alone there were 32 rounds over $100 million compared with only 12 such rounds in 2015; however, this doesn't mean that fundraising has become easier overall since then because those same companies have gotten more expensive too (which we'll talk about later).
VCs still want to pour money into startups, but it's overwhelming to find where to put it.
VCs are still looking for that next unicorn. They want to find companies that can grow fast and become billion-dollar companies.
In order to do this, VCs are looking at areas like health care, artificial intelligence, autonomous vehicles, and fintech.
VCs see these new technologies as the next big thing in tech because they offer huge profit potential with low risk of failure compared to other industries like consumer electronics or social media.
We’re optimistic about the future of venture capital. The market is still extremely healthy, and we are seeing a lot of activity from VCs looking to invest in startups. The question is where they can find these companies, which is becoming increasingly challenging as more people try to raise money.
There’s an increasing amount of competition between startups and other types of businesses looking for funding, so it will be important for VCs to try new strategies like taking stakes in later-stage companies instead of investing directly into them. This will help them stay relevant while still providing liquidity options for investors who want out before IPO or acquisition.