What does the market for Series A investment look like, heading into 2017? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
Answer by Jason M. Lemkin, CEO/co-founder @ EchoSign, on Quora:
I think we're in a slightly strange place:
- All the big and successful VC funds have gone back to market and have raised fresh, larger pools of capital--A LOT of capital--and ...
- The markets have rebounded from the Feb '16 lows and VCs are comfortable with investing;
- The explosion of seed-focused Micro VCs has primed a lot more reliable Series A candidates;
- We had many big exits in 2016, both significant M&A and IPOs, to feel good about.
So ...
- Everyone has money to invest and is at least feeling somewhere between 'OK' and 'good.'
But there are headwinds:
- Many of these new, big/bigger funds haven't even made an investment yet out of their latest funds. Yes, the headlines talk about a lot of new funds. But many haven't even drawn down a dollar yet. They just raised funds while the getting was good. But these new funds, while signed and committed, are still on the shelf. At least for the moment.
- Many VCs, at least in SaaS, that I know are slowing down and digesting. They have a good hand and want to sit for a while. Many good, successful SaaS VCs I know have slowed down their investment pace. Not all. But a lot of them.
- The bar has gone up. Now we know what the bar is. You could before say Salesforce and Workday were outliers. But now we've had a wave of good IPO. To raise a Series A, you have to have the potential to be as good or better than Twilio, New Relic, Nutanix, AppDynamics, Coupa, Box, etc. That's a tough bar, my friends.
- That means you have to have the potential to be growing 70%+ at $100m+ to get funded at Series A. That's a really high bar. Man, it's high.
So many successful VCs have become more measured. If it's not better than Twilio (at least potentially)--why bother?
So many companies in SaaS today aren't getting funded that would have in '13, '14 and '15 in particular.
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You want to invest here. You do. But the multiple growth isn't what it was. If a start-up doesn't have outlier potential, you pass. You don't just hope it does.
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