👋 Hi, I’m Andre and welcome to my weekly newsletter, Data-driven VC. Every Tuesday, I publish “Insights” to digest the most relevant startup research & reports, and every Thursday, I publish “Essays” that cover hands-on insights about data-driven innovation & AI in VC. Follow along to understand how startup investing becomes more data-driven, why it matters, and what it means for you.
Brought to you by VESTBERRY - Portfolio Intelligence Platform for data-driven VCs
Your portfolio data is a powerful source of insights. However, piecing together the data to gain information can be challenging.Watch this video to learn how VCs can skip all the data tinkering and gain direct access to actionable insights about their investments.
Welcome to another “INSIGHTS” episode where we cover the most interesting startup research & reports from the previous two weeks.
We read all reports, studies, and papers about startups and the wider ecosystem, and condense the most important insights for you.
The only source you need to keep up with data-driven startup insights.
Carta European Ecosystem Study
Hot off the press: Following some truly insightful research on the US startup ecosystem, Carta just published the first batch of resources for the European market this morning. They provide valuable insight into round sizes and time between rounds, informing founders what to expect in their fundraising journey. Check out the full analysis by Arik Oslerne and his team here.
Seed and Pre-Seed Dynamics: While the seed market observed a 26% decrease in deals and a 14% drop in median round size from 2022, there's a notable 56% growth in median cash raised since 2020. The pre-seed segment, despite a 30% reduction in opportunities, has witnessed a 40% surge in median cash raised, indicating a tight but fruitful market for those who make the cut.
Seed to Series A: The path has lengthened since H1 2021, with a pronounced acceleration in late 2022 and early 2023. Yet, Series A startups have managed to secure funding in a median of 1 ½ years post-seed, marking the quickest transition in the current cycle.
Series B Challenge: The leap from Series A to Series B now stretches to a median of 760 days as of late 2023, signaling a tougher climb for companies at this stage. Despite this, Series B rounds remain robust, buoyed by a significant influx of capital despite a 40% dip in deal volume in 2023.
✈️ KEY TAKEAWAY
While the timelines for progressing from one fundraising stage to the next have stretched, the amounts being raised paint a picture of a resilient and adapting startup ecosystem. The consolidation in deal volume suggests a more competitive landscape, yet the increased capital for those who secure funding signals strong investor confidence, particularly in emerging technologies like AI.
Multiple Compression: Understanding Valuation Multiples Throughout Funding Rounds
Last week, Michael Ho’s analysis of startup valuation multiples and their decline across funding stages—from Seed to Series E—captured some attention. Observing that valuation multiples naturally decrease with each subsequent funding round may seem alarming for founders, but it's a fundamental aspect of startup evolution. Here's the breakdown:
Rapid Decline Observed: Seed rounds enjoy multiples between 13-53x, but as companies mature they converge toward public market averages around 7x.
Reasons for the Step-Down: The highest multiples at the Seed stage reflect that companies rarely make revenues early on. As they start monetizing, Series A rounds consider commercial aspects, yet price in the high growth momentum. As this drops towards Series B and beyond, multiples compress.
Growth Expectations: For a startup to stay on the venture scale trajectory, it should aim to hit $ 1M (= good sign for product-market fit) within the first 24 months (depending on product complexity) and then grow three times 3x and two times 2x year over year in order to achieve the magic $ 100M ARR within a total of around 7 years from incorporation.
✈️ KEY TAKEAWAY
Understanding these patterns is crucial for startups aiming to navigate the fundraising landscape effectively. The initial high valuation multiples are not just a testament to a company's potential but also a reminder of the steep growth expectations embedded in venture capital. + Pro Tip: Early-stage founders should avoid over-capitalization to maintain flexibility and align with realistic growth and valuation expectations. Keep your long-term equity story in mind.
Subscribe to DDVC to read the rest.
Join the Data Driven VC community to get access to this post and other subscriber-only content.
Join the Community