We have been seeing quite a few seed rounds getting done in and around $100mm post-money and that concerns me for a few reasons: Seed stage is when a company has a good team, a good idea, but has not yet proven product market fit and a go to market model, and has not yet […]
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• shared by 
Marcelino Pantoja
in #Measurement
•
over 2 years ago
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Assistant Director of Entrepreneurship @ University of Notre Dame
For the VCs here: is there a factor or factors driving these big early-stage valuations?
CEO | Founder | Managing Partner @ Platform Venture Studio
In short, too much money chasing too few (good) deals.
The backdrop is that a lot of money has flowed into venture funds because of poor returns from other asset classes in the last few years.
A lot of that capital has been invested in late stage rounds, increasing valuations there, and also meaning companies can stay public much longer.
But, there's only so many late stage deals to deploy capital into.
So, now bigger firms - who normally focused on the late stages - are looking for better deals by investing in the earlier stage rounds. The poster child being Tiger.
Inevitably, the same thing is now happening with the early stage rounds - valuations are ballooning as large funds seek to deploy lots of capital.
Bear in mind that valuation in venture is driven in large part by how much money investors want to put in. There is a fairly large disconnect between intrinsic value and the valuations used for the investment. The big funds can't put in the amount of money they want at the early stage without ballooning the valuation because, otherwise, they'd dilute the founders to almost nothing.
Many of @Marcelino Pantoja's prior posts unpick a lot of this in more detail.
Founder, MD @ PivotNorth Capital
we've hit .com level craziness
Founder-in-Residence @ Platform Venture Studio
Early-stage venture is not for the faint of heart. Even with the number of unicorns multiplying dramatically this year.
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"The exit values in VC have increased significantly over the last decade leading to escalating entry values. That makes sense. But the two things that have not changed materially over the last decade are the dilution from seed to exit and the power-law distribution of outcomes in an early stage portfolio.
The failure rates are so high in early-stage investing that the power-law curves are steep. If your best-performing investment, after taking significant dilution, cannot return your early-stage fund, then you are doing something wrong."
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