Circular Patterns in Venture Capital and Angel Investing: Interesting Trends and Tips

1. Over the past decade, the size of seed rounds has remained stagnant and the number of transactions has decreased. To the untrained eye, there appears to be more competition for seed dollars. Yet below the surface, startups are recycling the experience of the founders. The reason why the number of deals has decreased is that the teams are better prepared, they are more financially intelligent, they have access to assistance at a better price, they lose less time and resources, they are using other forms of financing BEFORE the seed rounds and are changing or deciding to go out earlier, in the pre-planting stage. (The founders will set out to explore new opportunities.)

Founding teams are recycled

2. More companies seeking seed rounds already have sales, expression of interest, and some form of market validation as a result of the circular economy of entrepreneurial mind and action. Companies looking for seed rounds are more advanced than 10 years ago. Founders are using other ways to get funding (as they should! Because seed funding is so expensive!), And they are also recycling the experience of founding, co-founding, advising and / or being the first hires at previous companies. This is creating a circular economy of business experience. Not just serial entrepreneurs, but a large group of people who have experienced startup development (failed, succeeded, and everything in between, in so many roles!).

Funder get recycled

3. More and more investors are coming in and the seed rounds have become more collaborative. More and more small funds, angels and groups of angels are investing together. That means more eyes are evaluating the deals (GOOD), but also the BAD deals are being achieved because the impact of each deal on the overall portfolio is less, and the FOMO (fear of missing out) can get that signature! Think of Theranos (ay).

TIP: No one talks about the herd mentality and there will be some lessons to be learned in the future. Due to the cyclical and recycling nature of funding, early investors can scan offers early, with lower amounts, and if they want to play in future rounds they must do so early and with others – pay to play.

Founder and funder recycling is also changing outputs:

4. The exits are also being recycled! Companies are being acquired, they are going public, they are being torn to pieces, they are being resold, they are being privatized, they are being republished, and there are many emerging exit opportunities. This is actually an area ripe for disruption. Welcome to the world of recycling outlets.

And the financing process has become more interesting and complex.

5. As both entrepreneurs and funders become more comfortable navigating many startup or adult financing options, new financing options are emerging: there is better knowledge about crowdfunding, cryptocurrencies, hybrids (safes / convertible notes) and SFI rates (can we call these special financing instruments?). Capital providers are borrowing from SPV, SPE and SVI. I can’t wait to see what new options emerge from this.

All of this recycling and reuse has an impact on ROI and capital markets.

6. The cycles are longer: it takes longer to climb a bigger mountain, especially if, along the way, there have been some quasi-exits, pivots, more and more rounds. This is having an impact on the way we negotiate the financing that comes into the company, because there is light at the end of the tunnel, but the tunnel is getting much longer. Combine this with the uncertainty of how investors come out. Again, this is an area ripe for disruption and I can’t wait for new options to emerge. With longer cycles, the return on investment decreases, so companies are forced to find new and disruptive ways to excite investors and NEW investors who are supposedly more risk averse and adventurous, but who are actually reckless .

Longer roads need more resources,

But the supply of capital does not exist in a vacuum

7. Public markets are contracting and investors, especially institutional investors, are going through a roller coaster of political insanity. Mainly stemming from the surprising interest in protecting borders than in having healthy global economies, financial and economic illiteracy is permeating the political arena where decisions are reckless and financial managers are focusing on reducing stupid risks (sighs) rather than creating and support new wealth.

Overall, a healthy mix of talent, capital, and technology recycling is boosting the economy despite policy mistakes.

For investors, the signs are clear: Get in early, support many startups, learn, and collaborate.

For entrepreneurs, the signs are: use many forms of financing, use dynamic financing, ask investors for support (not just money), and build dynamic teams.

Oh, and for small business owners who think that “small is beautiful”, now more than ever, my famous quote 100% of 1 is 1, but 1% of 1000 is more, it is more valid than ever. Get in line, abandon the illusion of “security” and adopt the “growth” mindset. If we stop growing, we begin to die. Small IS beautiful, it just isn’t sustainable.

For government and economic development agencies, the puzzle becomes increasingly complex … Hold on!

We really don’t know what we are doing, but we are doing it!

Leave a Reply

Your email address will not be published. Required fields are marked *