The 'Series-B Crunch' - Starting Out Is Easier, Building A Great Company Is Difficult
Recently, commentators have been talking about shifts in VC funding patterns over the past few years and what that might mean for entrepreneurs.
Earlier this month @brightsunvc in an article entitled "The Euro Crunch Cometh?", revealed that the number of early stage funds in Europe has nearly quadrupled between 2009 and 2013.
Then, Tomasz Tunguz, VC at Redpoint Ventures, wrote an article last week on "The Hardest Round To Raise For Startups", noting that "the number of Series As has grown by 31% annually for the past 5 years, reaching more than 831 Series As in 2013"...and crucially that "Series Bs lag behind at 10% annual growth. Before 2013, the Series B market was basically flat".
Today, Danielle Morrill from Mattermark wrote an article "Exploring the Series B Crunch" where she explores which VCs have the highest follow on rates from Series A to Series B. (Greylock Partners & Intel Capital are top of her list, followed by Kleiner Perkins).
Lots of analysis and opinion here, but what to make of it all?
Bill Janeway (Warburg Pincus) in a recent interview with Forbes, noted, "What we are seeing today is a bifurcation between a small number of very large venture firms who are investing funds well in excess of a billion dollars and a much larger number of smaller VC firms."
My own opinion is that it's never been easier to start a tech company but it's just as difficult as it's always been to build a great company.
Starting is easier than it was 10 years ago.
We had the promise of the dotcom boom in the late 90s. At that time it was very expensive to develop tech businesses. You had to write all your code from scratch. You had to buy all of your own servers. The potential market was relatively small because most people were not yet online in the way they are today.
Fast forward 15 years and coding is super fast with languages like Ruby on Rails, there are open source code libraries to draw on, servers can be rented by the minute and configured from a web browser, the majority of adults now carry a web enabled device with them at all times, marketplaces with huge audiences exist (e.g. Amazon and eBay) where traders can get started easily, simple tools to test conversion rates are free (e.g. Google Analytics), delivery services are evolving, Wifi is everywhere, 3G is getting faster with 4G on the way. And so on. And so on.
In short, cost of production has gone down, distribution has gone mainstream and the online market size has increased.
This means that entrepreneurs can very quickly and easily validate business models using lean startup methodologies. Knowledge gained 15 years ago that would have cost millions, now costs tens of thousands.
Many smaller seed funds and accelerators have sprung up and a new ecosystem is developing.
To be successful however, a company needs more than an idea and some initial funding.
Getting Product-Market fit right, early, is crucial.
At Forward Partners we invest in very early stage eCommerce companies.
We see ourselves as a “startup catalyst”, combining investment with practical hands-on expertise and insight.
Our team have the experience to enable entrepreneurs to succeed. We do more than advise and mentor. We help the best entrepreneurs quickly find a great product-market fit with our expertise in customer discovery, coding, design, customer acquisition, testing and analysis as well as offering office space.
This approach (together with making smart investment decisions) we believe will improve the odds of success for the companies that we invest in, helping them get to Series A, Series B and beyond.