Startup Funding 2024 Insights by Jonathan Greechan

When I say what I'm seeing, it's by looking at the deals that we're seeing at Founder Institute. Okay, Founder Institute operates chapters in over 100 countries around the world. We see dozens of term sheets every single week from startups. And in addition to that, our sister company, which spun out a couple of years ago, is called VC Lab. They have now launched over 350 venture funds, right? Mostly pre-seed to seed stage venture funds. So we, I like to think that not only do we have a good kind of sense on what's going on in the market, but we have a good sense as to what's going on in the market, not just in Silicon Valley and New York and Austin and places like that, but internationally. And I think the first thing that I always want to explain to people is just to give them some context. On where we're coming from. And where we're coming from is pretty much an unprecedented time, which was 2021, right? And when I say 2021, I, I'm going to use that name a lot in this, in this talk. And really what I'm referring to is probably about second half of 2020 through about the first half of 2022. Okay, um, it was a crazy time. And if you want to look through sort of a timeline of what happened, we had a global pandemic, we had zero interest rate policies that were going on for many, many years but sort of hit this kind of, you know, pinnacle, so to speak, after the pandemic in an effort to really revitalize economies that were really in the crapper, so to speak. And as a result, everybody was stuck at home, so tech went nuclear, right? It already was on an upturn, but it really— everything in tech, everything in venture capital, like, you couldn't lose money, right? I mean, think about where we were. You people were betting— I mean, remember GameStop and things like that, right? The Web3 all this kind of stuff. Not Web3, I shouldn't say that, but, uh, some of these, you know, crypto meme stocks, things like that. Like, you just— you almost couldn't lose money on some of these things because we were all stuck at home. We had nothing better to do than watch streaming and to do all these digital things, right? As a result, venture funds raised a record amount of money. The number of venture funds that raised money was at a record. Um, something that was super irresponsible was that very large institutional investors, right? So the people that would typically invest in venture funds to then invest their money into startups started skipping the venture funds and going straight to the startups, right? So these were pension funds, global sovereign wealth, or sovereign wealth funds and things like that, right? And that's a super risky thing to do. And as a result of that, because there were these billions coming into startups, because the market was so frothy, You then saw traditional VCs were like, oh wow, the people that used to invest in us are now skipping us and going straight to startups. So now they started to need to go further down and down the startup stack in order to compete. When I mean down and down, I mean lower and lower rounds, right? Earlier and earlier stages. So you saw investors that typically would only invest in things like Series B, Series C rounds, right? Later stage startups. Now they're starting to look at seed. Pre-seed and things like that, launching accelerators and all those kinds of things. And what really this all means is it was a huge fricking bubble. Okay? So there are still, you're gonna see all of these news items, right? Around the market saying, oh, it's fallen the most since 2019, the most since, fallen this much since 2020, right? And just remember that this is what that period of time looks like. Okay, so yes, those claims like this are going to be statistically accurate, but within this context, right? It was a crazy, crazy time. It was an outlier. And since then, we've been going into a correction. So just quickly, some perception versus reality things for all the entrepreneurs out there. Is the market for startup funding really bad? No, it's not. Okay. Now it is really bad compared to 2021, right? It was an outlier. And what we're seeing right now, in my opinion, and this is something that I projected last year, it was almost about a year ago, I ran a similar event and I said, look, we're going to get to about 2019. And if you look at the projections now, that's pretty much where we're about to get to at the end of this year is 2019. Pre-COVID, pre-all of that madness that I was just describing. And 2019 was just fine. Okay, it really was. It was the second highest year for VC funding of the entire 2010 decade. So, um, that's what we're returning to. And, you know, part of where people get into the discussion of, wow, the funding market's really bad, is that they say it's really bad across the board. But look, it's really bad at those later stages. All right, and let me kind of go backwards here and explain some context. It's because there was so much money flowing into those later stages of companies, right? Billion-dollar, like, mega rounds is what we were calling them, right? Because you saw this chart here of unicorns, right? What makes a unicorn? A unicorn is born when people, some group of people, thinks that it's worth a billion dollars, right? What's the fastest way for a company to become a unicorn? When it raises a mega round of funding, right? If you raise a $500 million round of funding, now you right there, just that cash is half of your valuation towards becoming a unicorn, right? So these mega funding rounds have dropped a lot, right? And that's what, why when you look at a lot of the numbers, it's gonna say, oh, look at the amount of money that was raised back then compared to now. That's always going to be skewed by the mega rounds. But if you look at the earlier stages of what's going on, right, it's really not so bad. So here, I mentioned, I think we're going to get to 2019 levels and it actually looks like we're probably going to exceed these. This was a snapshot from June, right? And if you look here, 2023, this would project to go over 2019 levels, right? So this is according to PitchBook. And most people in the venture space know that most of the, like, this fall and kind of fundraising season is going to eclipse that number from 2019. And, you know, the other thing to think about here is that some of those trends that drove that bubble also will protect the earliest stages, right? As I mentioned, there was a lot of money coming in from institutional investors. That were, um, that were trying to then invest directly in startups. This, this made a lot of traditional VCs start to go earlier and earlier and earlier and raise funds for those earlier stages. Now, just because the market's changed doesn't mean that those investors can now change their thesis, right? They raise their money based on a thesis. They raise that money and those funds at that time saying, look, we want to invest in this stage of companies because we think this is where the value is. That still remains, right? That money is still there. Um, and, you know, a lot of people have been talking about dry powder for a while, and the dry powder is still there, right? It does need to be deployed. It doesn't need to be deployed today. It doesn't need to be deployed tomorrow, right? There is time, and I think investors are certainly just going to be prudent about when and where they deploy that. But the amount of money is there. To go into startups, especially at the earliest stages. And then just to illustrate, just looking at some of the other statistics that has been released recently, I mean, look over here, you'll see that basically the later you go, right, the further down the stack, um, the worse it's going to get, right? Um, but the higher up, uh, you are, you're okay, right? The money is starting to flow more in that area. And that's generally what you see whenever there's bad economic, like, macroeconomic trends, the angel and the pre-seed stages typically seem— they're always going to be a little bit more constant, right? Because they're betting much more on the future. They're not betting on this year or next year. They're betting on the year after that, right? So there's always that leap. So the money will always typically start to flow to the earlier stages when there is, um, some of that volatility in the later stages. And then here on this right one, you'll see again seed rounds, we're actually starting to see an increase in the valuations. And, and this one, um, you know, just showing you a different view here, it actually— the median, the median, uh, seed pre-money valuation hit a record high, um, this year. And, uh, that is according to PitchBook as well. So that to me was sort of a surprise because I was expecting a little bit more of a seed crunch. Um, but you are seeing that those valuations are starting to go up as people continue to sort of get slaughtered, honestly, in those later stages of VC. Uh, money continues to flow to the beginning, and also a lot of that money strategically was allocated to those earlier stages during this whole bubble that we saw, right? Um, and again, you could see here, here's just another view of some of the stats that we've seen. You know, it's the deal-making, the number of deals is up right now. The value of the deals is down, right? And again, when you reduce those mega deals, that's what's going to happen, right? But that's not necessarily a bad thing. It's a bad thing if you are a later-stage company that raised a lot of money at very high valuations these last couple of years, and that is what has explained a lot of the, the mass layoffs in later-stage startups, right? It's just, that's the direct effect of it. But, uh, the, the deal numbers have gone up, though the value has gone down, which typically means that the earlier stages are, are favored, right? Um, so those are just some of the kind of metrics that we've seen, but there's stories out there, um, that are supporting this. And, you know, I always try to back it up with metrics before I explained kind of what we're seeing a little bit more anecdotally, but anecdotally, 100%, we are seeing the rates of these angel and pre-seed deals rise. Now, some of the terms are not as favorable to invest to founders, and I'll get into that in a moment, and that's fine, right? That's part of the correction as well. Um, but the velocity of these deals is increasing. So, uh, Founder Institutes Sister company is called VC Lab. VC Lab is, as I mentioned, is launched now over 350 venture funds. So we have insights there and we are seeing a record number of applications, record number of pre-seed funds are being launched through that accelerator and on that platform. We recently held an event just last month where we had a lot of top angel investors. Here you'll see Peter Pham, and Jason Calacanis. Jason Calacanis in particular said he's more bullish than he's ever been and that this year will be the highest number of angel deals that he's ever done.