{"id":7784,"date":"2021-06-03T18:46:42","date_gmt":"2021-06-04T01:46:42","guid":{"rendered":"https:\/\/maccelerator.la\/?p=7784"},"modified":"2021-06-03T18:53:00","modified_gmt":"2021-06-04T01:53:00","slug":"venture-capital-trends","status":"publish","type":"post","link":"https:\/\/maccelerator.la\/en\/blog\/venture-capital\/venture-capital-trends\/","title":{"rendered":"Venture Capital Trends"},"content":{"rendered":"\n

Last year was a challenging year, marked with unprecedented turbulence particularly for companies seeking funding<\/a>. The pandemic affected the investment landscape as the world went remote. This year and the coming years look to be promising in the venture capital world.<\/p>\n\n\n\n

Some interesting trends have emerged<\/strong>, especially with the phenomena of big venture capital firms investing in seed-stage startups. Let\u2019s take a closer look at what\u2019s happens, the advantages and disadvantages of receiving big VC<\/a> funding versus seed-stage investors, and how founded companies are responding. <\/p>\n\n\n\n

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What is Venture Capital?<\/h2>\n\n\n\n

Venture capital<\/a> firms are typically run by a few partners that have raised a large sum of money from a group of limited partners (LP). These firms invest on their behalf. They focus on investing in startups and small businesses that show the potential for exponential growth<\/a>, with the tradeoff being that they are highly risky.<\/p>\n\n\n\n

These firms usually have 7-10 years to make those investments and generate a return. The end goal is that venture capital is used for an eventual IPO or acquisition of the startup. Most of their investments will end up failing, but VC firms hope to have one or two winners out of the bunch. <\/p>\n\n\n\n

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Trends in Venture Capital<\/h2>\n\n\n\n

Investing in the next Uber or Stack is the goal of every venture capital fund. With how competitive the market is today, getting access to that promising Series A is necessary for success. The strategy of getting a piece of the business early makes these deals important since the checks they write aren\u2019t large enough to make a difference economically. <\/p>\n\n\n\n

The first quarter of 2021 was marked with global venture funding hitting an all-time high of $125 billion<\/a>. This is the first single quarter to have reached more than $100 billion according to data from Crunchbase. <\/p>\n\n\n\n

Unicorn startups<\/strong>, which are private companies that have a value of $1 billion or more, have also increased. An average of two new unicorns each working day was created in this first quarter, which is remarkably higher than all previous quarters.<\/p>\n\n\n\n

\"Trends
Photo by Blogging Guide.<\/figcaption><\/figure>\n\n\n\n

Technology startups, such as those in the fintech industry had strong growth, stemming from the pandemic. Additionally, the acquisition markets are strong.<\/p>\n\n\n\n

During the first quarter of 2021, there were $4.1 billion dollars were invested into seed-stage venture deals<\/strong>. That\u2019s compared to $3.9 billion dollars during the first quarter of 2020. While this is not significantly higher, the numbers have held up during the pandemic.  <\/p>\n\n\n\n

When founders seek to raise seed rounds, they have typically turned to investors. What\u2019s happening more often now is that these seed-stage startups have more options. Big VC firms are getting in the game. These large venture capital funds are signing deals with limited dilution<\/a>, bigger checks, and the chance to put a legacy brand name on their project. <\/p>\n\n\n\n

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Companies receiving Seed Funding has been rising<\/h2>\n\n\n\n

A seed round<\/a> is defined as a founding round this the company\u2019s first round and raises less than $4,000,000. When the initial rounds grow above this amount, these are considered Series A funding. <\/p>\n\n\n\n

Seed funding by big VC firms is not something that has occurred overnight. <\/p>\n\n\n\n

The numbers have been rising for quite a while actually. CrunchBase<\/a> provides data on over 180,000 startups and their funding activity. Their dataset confirms that this major trend has existed for years. <\/p>\n\n\n\n

It is hard to say what the cause of this seek funding acceleration is. <\/strong>Big VC firms may have realized that entering into a company at an earlier stage may help them with maintaining more shares at later stages. Or there might be more people who are starting their company, leading to an increased supply of high-quality startups. <\/p>\n\n\n\n

The low-interest-rate market environment could be leading investors to look for high returns in other places such as these venture capital firms.<\/p>\n\n\n\n

Since the 2008 market crash, the U.S. economy has slowly but surely improved. This is worth mentioning as it\u2019s probably one of the reasons for VC firms to increasingly invest in seed-stage startups. <\/p>\n\n\n\n

Another trend that\u2019s seen in these VC seed investments is that they tend to be bigger. When VC firms participate in seed rounds, they are usually two or three times larger than seed rounds than they aren\u2019t participating. <\/strong><\/p>\n\n\n\n

Subsequently, the second rounds of these VC-backed<\/a> rounds are also larger. Though this appears to be the case because the initial found was bigger. This appears to be the case regardless of who funded the first round with similarly sized first rounds to the second round. <\/p>\n\n\n\n

The follow-up investments by these VC firms don\u2019t appear to make a difference, however. Companies that receive a follow-on investment are about the same percentage for those companies that take a seed round from a VC firm and those that don\u2019t. It is unclear why this seems to be the case as the logical reasoning would be that having the backing of a well-funding, established institution would lead to being able to raise money later with ease. <\/p>\n\n\n\n

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Examples of Seed-Stage Investing<\/h2>\n\n\n\n

You don\u2019t have to look that far to see examples of seed-stage funding by big VC firms. Accel<\/strong> invested in Slack several years ago when it was in its seed stage. As we all know, Slack turned out to be a big winner in the technology space elevated by the effects of the pandemic. Currently, Accel makes over 15 seed investments each year.<\/strong><\/p>\n\n\n\n

Dropbox, Airbnb, and Stripe all received seed investments from mega-fund, Sequoia.<\/strong> Other notable seed-stage companies they invested in include Evervault, Veil, Oso Security, and Re:Store. <\/p>\n\n\n\n

In 2013, GGV Capital implemented a seed strategy. Chinese AI company, Lingochamp was their first bet. The company has raised $72 million dollars in 2018 from its U.S. IPO.<\/strong> They have done more than 43 seed deals since. <\/p>\n\n\n\n

Another VC firm that has a specific seed strategy is Sequoia Capital. Their scout program is designed to find early-stage talent to invest in. There are $180 million dollars available in the fund.<\/strong> The former hedge fund turned VC, Coatue Management<\/a> has allocated $700 million towards finding these young startups. <\/p>\n\n\n\n

\"Examples
Photo by Hardik Pandya.<\/figcaption><\/figure>\n\n\n\n

Here is a rundown of some of the biggest VC firms in Silicon Valley<\/a> that are involved in seed-stage funding: <\/p>\n\n\n\n