RIP Tony Hsieh. This article is dedicated to you and the inspiration you provided to me and so many entrepreneurs, helping us to put our passion and focus into the vision and values that led us to our start-up dreams. The investors and the funding are out there!
$69.1 billion! That’s how much has been raised by entrepreneurs in venture capital funding in the US so far in 2020 according to VC, PE and M&A news outlet PitchBook. This figure represents a new high, breaking the record set back in 2018.
And it’s not just in the US that businesses are getting funded. PitchBook also reports early-stage and late-stage venture investments in Europe are booming, riding a wave of optimism from both established VC firms and non-traditional investors who look to put their money into sectors that have thrived during the pandemic and into pandemic-proof technology innovations.
Here are some other key stats for 2020 that indicate a solid and growing foundation for investment in 2021:
Seed Pre-Money Valuation
Although there have been declines in deal valuations and a rise in equity ownership stakes with angel investors, the velocity of value creation for seed-stage companies has been very strong. Overall, pre-money valuations for seed-stage companies is strong compared with 2019, which was a strong year too. In addition, valuations for the smallest and largest seed deals have both increased over 2019, with the middle two quartiles holding steady.
- Median seed-state pre-money valuation is consistent with 2019.
- Top and bottom quartile seed pre-money valuations at historic highs.
- 44% annualized growth in seed-stage company valuations.
Early-Stage VC Activity
Pre-money valuations for the median early-stage venture capital investment set an all-time high in 2020, despite many believing that Covid would hinder the market. The one major impact that the pandemic has had in VC funding is an increase in the time between funding rounds for early-stage companies. There are some indicators that VC investment in early-stage companies is slowing a little, including the step-up multiple and the velocity of value creation, but the drops in those metrics are from the all-time highs set in 2019 and are consistent with performance in 2018.
- Early-stage venture capital valuation is at a record high.
- Median time between funding rounds for early-stage VC investments has increased to 1.2 years, meaning entrepreneurs are running leaner to extend their runway.
Late-Stage VC Activity
Late-stage venture capital investments continue to dominate the US market, with almost 69% of total deal value in 2020. The average deal size is up from 2019, driven largely by an increase in mega-deals.
Non-Traditional Investor Activity
Non-traditional investors have been highly active in the venture market throughout 2020, including their participation in mega-deals at a rate of 96%. When it comes to early-stage funding for non-traditional investors, the pre-money valuations have remained steady with 2019, which was a banner year in that regard.
One other area to keep an eye on when it comes to the funding environment is deal terms. Terms on deal sheets that are “founder-friendly” continue to proliferate, as cumulative dividend terms are at a 10-year low.
The bottom line is that now is the time to get your business funded. Exit values have recovered and are gaining strength, meaning investors will have more capital to invest throughout 2021.
This year, I’ve published a group of articles to help you get out there in front of potential investors, including content on creating and delivering a digital investor pitch (“Now’s the Time to Get Your Business Funded: Coronavirus Edition”), on unique ways to attract potential investors (“How Far Will You Go to Get Your Business Funded?”), and on featuring the sustainability of your business in any market (“Pandemic-Proof Your Funding Pitch Deck”).
What are you waiting for?
To learn more on how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at firstname.lastname@example.org. You find her on LinkedIn Profile at www.linkedin.com/in/ineslebow or her ETS website at www.transformationsolutions.pro.
Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at www.linkedin.com/in/ineslebow, view the ETS website at www.transformationsolutions.pro, or email her directly at email@example.com.