The changes seen in the funding environment go hand in hand with the market. The Venture Capital funding environment has changed dramatically over the past decade, from the rise in Seed funding over 10 years ago, to the slowdown witnessed in Q3/4 2015. These shifts help to explain where Venture Capital is going now.  The shifts we are observing in the current environment include two major trends in the VC world: ‘Infighting’ and ‘Lack of Conviction’. When planning you should think about your strategy and how your funding sources will act through market slowdowns and tough markets.        The changes seen in the funding environment go hand in hand with the market. The shifts we are observing in the current environment include ‘Infighting’ and ‘Lack of Conviction’. These can be put into context by looking at the Venture Capital funding environment over the past decade.

1. The Rise of Seed Funding

Just over a decade ago Seed Capital to small businesses hardly existed, and now with the cost of starting a company dramatically decreasing and the rise in availability of Seed Capital we have seen an increase in the number of start-ups.

2. The Rise of Angel Investors

After the rise of Seed came the rise of Angel Investors to provide capital. At the same time, there was a huge increase in crowdfunding, a major contributor to the boom in Silicon Valley.

3. Boom in Number of Start-up’s

The combination of a decrease in the cost of starting a company and capital being more accessible has seen a massive surge in the number of start-up’s.

4. Explosion in Seed Funds

Seed funds have become a core component in the funding environment, providing early stage start-ups with capital.

5. Non-VC Growth Rounds

Between 2012 and 2015 we saw the introduction of mutual funds, hedge funds, corporate investors and Limited Partners into late-stages of Venture Capital. The result of this was significant, with the median valuation of start-ups to triple in 3 years.

6. Late-Stage VC’s Pay Up

VC’s responded to this by raising larger funds and growth funds so they didn’t miss out on deals to alternative investors.

7. Market Slow Down

The market changed considerably in Q3/4 2015 with a slowdown. Although this is hard to pinpoint to a single event, the slowdown has questioned current valuations. All of this helps to explain where VC is going now and has led to two major trends in the Venture Capital world:

1. VC Infighting

Usually in a booming market, investors’ interests align. Now that the market is slowing down, investors’ interests can differ dramatically and this has resulted in a trend of ‘Infighting’. The refinancing can be messy with differing interests and often results in changes in management teams.

2. Lack of Conviction and Follow Through

Historically, VC funds have supported each other during exits, working together in tough times so that you can work together again in future. But with so many new VC firms in the last few years and with non-VCs these ‘rules’ and norms aren’t holding true. This has resulted in a trend where exiting investors show each other a lack of support. These two major trends that we are currently witnessing should encourage you to think about your strategy and how your funding sources will act through market slowdowns and tough markets.   The S4B Team We are a team of Profit Consultants and Chartered Accountants who work with Venture Capitalists to help protect and maximise their investment. Send our team an email at [email protected] or call 01628 623444 to see how we can help you.