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

1. Over the past decade, the size of seed rounds has stagnated and the number of deals has declined. To the untrained eye, there appears to be more competition for seed dollars. Beneath the surface, however, startups recycle the experience of their founders. The reason the number of deals has decreased is because teams are better prepared, more financially savvy, have access to support at better prices, waste less time and resources, use other forms of funding BEFORE seed rounds and changing or deciding to exit early – at the pre-seed stage. (The founders will embark on exploring new opportunities).

The founding teams are recycled

2. More companies seeking seed rounds already have sales, expressions 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 they were 10 years ago. Founders use other ways to get funding (as they should! Because seed funding is very expensive!), and they also recycle experience from founding, co-founding, advising, and/or early employees at previous firms. This creates a circular economy of entrepreneurial experience. Not just serial entrepreneurs, but a wide range of people who have had experience growing a startup (failed, successful and everything in between, in so many roles!).

Supplier of means to be recycled

3. More investors are entering each round and seed rounds have become more collaborative. More and more small funds, angels and angel groups are co-investing. This means more eyes are evaluating trades (GOOD), but BAD trades get passed over too because the impact of each trade on the overall portfolio is lower and FOMO (fear of missing out) can get that signature! Think Theranos (ouch).

TIP: Nobody talks about herd mentality and there will be some lessons to learn going forward. Because of the cycle and recycling of funding, early investors can scan deals early, with lower amounts, and if they want to play in future rounds, they have to get in early with other: pay to play.

Recycling founders and funders also changes outcomes:

4. Outputs are recycled too! Companies get acquired, go public, break up, resell, privatize, go public, and there are many emerging exit opportunities. This is actually a break-ready zone. Welcome to the world of recycling outlets.

And the funding process has become more interesting and complex.

5. As both entrepreneurs and financiers become more comfortable navigating the many funding options for startups or mature companies, new funding opportunities are emerging: there is better knowledge of crowdfunding, cryptocurrencies, hybrids (vaults/convertible notes ) and SFI types (can we call these special financing instruments?). Capital providers borrow from SPVs, SPEs and SVIs. I can’t wait to see what new options come out of this.

All of this recycling and repurposing has an impact on investment returns and capital markets

6. Cycles are longer: It takes longer to climb a bigger mountain, especially if there have been some quasi-exits, spins, more and bigger loops along the way. It affects the way we negotiate funding that comes into the company because there is light at the end of the tunnel, but the tunnel is getting much longer. Combine that with the uncertainty of how investors exit. Again, this is an area that is ripe for disruption and I can’t wait to see new options emerge. With longer cycles, investment returns diminish, so firms are forced to find new and disruptive ways to excite investors and NEW investors who are supposed to be more risk-averse and adventurous, but in reality are reckless.

Longer paths require more resources,

But the supply of capital does not exist in a vacuum

7. Public markets are shrinking and investors – especially institutional investors – are riding the rollercoaster of political madness. Mostly stemming from a surprising interest in protecting borders rather than having healthy global economies, financial and economic illiteracy permeates the political arena, where decisions are reckless and financial managers focus on reducing foolish risks rather than creating and sustaining new ones. wealth.

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

For investors, the signals are clear: get in early, back lots of startups, learn and collaborate.

For entrepreneurs, the signals indicate: Use multiple forms of funding, use dynamic funding, ask investors for support (not just money), and build dynamic teams.

Oh, and for small business owners who believe that “small is beautiful”, now more than ever, my famous quote 100% of 1 is 1, but 1% of 1000 is more, is more valid than ever. Sort yourself out, discard the illusion of “security” and embrace a “growth” mindset. If we stop growing, we start dying. Small IS beautiful, it’s just not sustainable.

For government and economic development agencies, the puzzle is getting more complex… Hang on!

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