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Raising Capital in the New Venture Landscape

Dec 21, 2021, 6 min read

Dec 21, 2021


6 min read

Like any industry, venture capitalism is a shifting landscape with ebbs and flows, though to be fair, it hasn’t really ebbed lately. The industry has seen astonishing growth over the last few years—one that’s influenced how founders pursue venture funding, the typical deal sizes they receive, and how VC firms choose which startups they fund.

To get a sense of these trends, why they’re happening, and how founders can approach acquiring capital in the current market, Brex recently teamed up with Salesforce to host a virtual event with experts in the field.

Speakers included Y Combinator’s Anu Hariharan, Salesforce Ventures’ Katie Thiry, and DocSend CEO Russ Heddleson, with co-hosts Kat Cole and Crossover VC founder Noah Lichtenstein —  investors and thought leaders with a long tenure of helping startups achieve growth.

Below are the most interesting insights from the discussion, which can be watched in full below.

A Founder’s Market

One of the biggest takeaways from the conversation was that we’re currently in a market that’s almost invariably considered a founder’s market, indicated by three major trends:

  1. More money is pouring into venture capital than ever before, with over $100B raised by VC funds this year.
  2. VC funds themselves are getting larger, with $1B+ funds. The eagerness of venture capital firms to seriously invest in startups at the seed round (a phase typically associated with higher risk than later funding stages) has also increased sharply over the last decade.
  3. Deal sizes and valuations for startups are also getting significantly larger, with the average size of a seed round more than doubling in the last five years. Where seed rounds were once $1 million on average in the not-so-distant past, $5 to $10 million seed rounds at $50 million valuations are now fairly common.

So why is this?

More Tech, More Capital

“For one thing, we have a lot more startups supporting a lot more industries,” said Anu Hariharan, investing partner at YC Continuity, a growth fund that invests in YC startups from Series B onwards.

“Tech is now present in every industry. It’s in retail. It’s in fintech. It’s in software, and that’s barely scratching the surface.”

“Another reason is that the liquidity, which we never talk about, has also been excellent in the last two years in tech. So it’s not a pretext of investing and taking high risks: tech companies are largely gaining monopolistic share and becoming really large businesses.”

“The takeaway for us at YC is it’s great for entrepreneurship. There’s never been a better time for founders to start companies.”

“—I think Anu made a really good point about the liquidity,” said Katie Thiry, Principal at Salesforce Ventures. “We're seeing a larger percentage of IPOs that are venture-backed. I also recently read a stat that said M&A prices are going up three times, so I think it's really sort of liquidity across the board.”

“I think it's [also] become more competitive for investors in the market as we see more non-traditional entrants. Venture capital dollars are coming from all over, not just crossover funds,” said Katie. “And what we're seeing is that rounds are getting larger as more investors are wanting to play in the rounds.”

Time Spent on Pitch Decks

“We’ve also seen the amount of [investor] time spent per pitch deck continue to decline,” said Russ. “It hit an all time low of two minutes and 30 seconds recently. And a lot of investors are getting to page four or five and then just not even bothering to read the rest.”

Russ says that, as a founder, the clear takeaway is that it’s a great time to raise capital, but the data indicates that founders also really need to nail their narrative.

“You’ve got to make it really clear. Investors have never been looking at as many deals and… they want to back things that seem more certain. So there is a quality bar. It’s not like a market where everyone gets to raise just because you’re out there.”

“[Founders] need to work harder to send [their] decks to more investors, but it has never been a better time to raise.”

Looking at the Data

The favorability of the current market toward founders and the eagerness for investors to fund startups is a view shared by DocSend— a popular app used by founders to securely send pitch decks to prospective investors.

Each year, DocSend producesdetailed reports for founders based on aggregate opt-in data. The reports show how long investors spend viewing pitch decks, how many are shared, and more, resulting in important snapshots of the fundraising landscape.

“This quarter we’ve seen a 21% jump in investor activity on pitch decks from last quarter,” said DocSend CEO Russ Heddleson. “It’s up 60% year over year for investor activity, which is up from the year before that. So we’re seeing quite a jump. And then on the founder side, we’re seeing only about a 10% increase last quarter to this quarter and about a 40% increase year over year, which is still huge.”


What Investors Want in 2022

While the VC landscape has changed, what venture capitalists look for in startups perhaps hasn’t. The prevailing theme from the conversation was that ‘founder market fit’ and the founder’s ability to lead their team are crucially important. In a startup’s earliest stages, investors aren’t just looking for a sound business model, but for the founder’s ability to persevere.

Providing insights into how YC Continuity chooses which startups they fund, Anu explained that YC asks themselves the following three questions when considering which startups to invest in:

  1. Do the founders have grit and perseverance? Can they run through brick walls, and have they demonstrated this ability?
  2. Do the founders move quickly?

    “As a startup, I always say that [the speed with which you move] is your edge,” said Anu. “How soon are you iterating? How fast are you iterating?"

    "Making those changes in weeks and not months is super important, because you have 10 other startups trying to do the same thing. So who does it first, and [who] is able to get users is important.”
  3. Are the founders good at hiring?

“Great companies are built because of teams. And if you, as great founders, are not able to hire amazing execs then you’re going to hit the ‘zombie mode.’ Because [if] you don’t scale, you can’t grow.”

Engineers & Fundraising

Anu explained that, for Y Combinator, a founder’s ability to effectively hire talented engineers is also crucial.

“We ask, how good are founders at hiring engineers? What do we think of those engineers? How competitive were the engineers' offers? How good were these founders in convincing them [to join their team], amidst 3,000 YC startups trying to hire the same roles?”

Salesforce Ventures’ Principal Katie Thiry and Crossover VC investor Noah Lichenstein also agreed that teams are an important factor in how they choose to invest in startups.

“We meet a team and read how they interact together,” said Katie. “Is the CEO bringing in the rest of the team into the conversation? Does the CEO know his or her strengths and his or her weaknesses? I couldn't emphasize that more— it's super important at the early stage, but it's really important throughout the whole life of the business.”

Above are a few highlights from the webinar ‘Raising Capital in the New Venture Landscape.’ For more detailed tips and inside advice from Salesforce Ventures, Y Combinator, and DocSend, watch the full interview below.


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