On this blog, we routinely look at two ends of the spectrum, startup success stories and review of failed startups. An interesting article in the New York Times reviews startups that are generating ‘mega-round’ investments; essentially large-scale fund raising of more than $100 million.
chart from dealroom.co
The article in NYT – 100 Million Was Once Big Money for a Start-Up. Now, It’s Common – highlights a few key themes
- Start-ups raising $100 million or more from investors — known as a mega-round in Silicon Valley — used to be a rarity. But now, they are practically routine, producing a frenzy around tech companies with enough scale and momentum to absorb a large check.
- For the start-ups, the pots of money are changing the normal way of building a tech company. They must move even faster, expand their ambitions and collect more investment money than ever — even if they might not be ready. They risk becoming too reliant on funding and never finding a path to profit.
- Investors participated in a record 273 mega-rounds last year, according to the data provider Crunchbase. This year is on pace to easily eclipse that, with 268 completed in the first seven months of the year. In July, start-ups reached more than 50 financing deals worth a combined $15 billion, a new monthly high.
- These mega-rounds have become so common that CB Insights, which tracks start-up investments, has even debated lifting its definition of a mega-round to $200 million or more, according to Anand Sanwal, the firm’s chief executive.
- Moving aggressively is not a choice. Well-funded start-ups, called “super-haves” by some investors, can afford to pay their employees more and lower their prices, losing money in the short term to win more customers.
Also of interest:
UK investment nearly doubled in 2017: what’s happening underneath – UK investment nearly doubled from $4.2 to $7.8 billion in 2017. Mega-rounds were a major growth driver. For instance, 2017 saw 22 rounds over $50 million, compared with nine in 2016. However mega-rounds were not the only factor: even when excluding the top-10 rounds in each year, investment increased from $3.2 to a new record of $5.1 billion. Note that the decline in number of rounds will likely reverse, once all smaller 2017 rounds have been announced.
Inside the rise and reign of supergiant venture capital rounds (techcrunch) – There was a time not so long ago when nine-figure venture capital rounds weren’t a near-daily feature of tech business news. But now funding rounds of $100 million or more cross the wires with stunning frequency. The era of supergiant rounds is now the new normal. This is attributable, in part, to billions of dollars flowing into new venture capital funds — the largest of which are raised by the oldest, most entrenched firms — and competition from relative newcomers, like SoftBank. Q2 2018 may have set new records for worldwide VC deal and dollar volume in this post-dot com cycle, but that belies an important fact: Investors are dumping the bulk of capital into a relatively small number of companies. The rise of supergiant rounds wound up in a “takeover” of the market.
Investors Keep Giving Startups More Funding Than They Need. Here’s Why the All-You-Can-Eat Buffet May Cause Indigestion. In this installment of Command Shift: The investors behind the new wave of venture capital mega-rounds may not have their portfolio companies’ interests at heart. “This is the best time to raise money ever,” Slack founder Stewart Butterfield told The New York Times in April 2015. “It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians.” In the months that followed, I and many other observers cited Butterfield’s thoroughly rational exuberance as evidence of a historic tech bubble, one data point among many that private-company valuations had become untethered from reality to a degree that made a painful correction not just inevitable but imminent.
There’s no shame in a $100M startup – The era of unicorn startups has created a distorted view of entrepreneurial success. All the talk about billion-dollar exits has inflated the numbers that define a win. Starting and selling a company for $100 million dollars is an outlier event in terms of pure entrepreneurial probability, but such outcomes are viewed as well short of success in many corners of today’s startup world.