Get Ready For Q115 Fundraising Insanity

One of the dynamics of going away for a month off the grid is that you come back to a wall of data. I’ve been absorbing it the past two days and it’s fascinating to ponder how my brain is processing it versus the normal continuous flow of information on a real-time basis.

I’m not a predictor. As we enter the time of year where every media-related thingy publishes it’s “best of 2014” and “predictions for 2015” lists, I simply pass on participating in all of them and read none of them. So – I’ll start with that – this is not a prediction, rather it’s a hypothesis, which is as long as there isn’t a cataclysmic macro event, Q115 financing activity is going to be insane.

The number of large, “later stage” financings are remarkable – both in size and velocity. We had several close last month and have some more in process. The number of companies I’ve heard of (mostly outside our portfolio) who are “getting ready to raise money in Q1” is a very long list. I’d noticed this before I went away, but the wall of data that I came back to reinforced it in a way I hadn’t completely processed.

The deals tend to fall into two categories – easy and immediate, which multiple bidders generating an rapidly escalating valuation or a long slow slog through lots of “almost there but we are passing because of some arbitrary reason.” If you translate the passes into english, they seem to fall into one of three categories.

  1. You aren’t growing fast enough. If you are less than 100% year over year growth or have declining year over year growth rate you are likely in this category.
  2. We are worried about some exogenous thing you can’t control or influence.
  3. There is some characteristic about your business we don’t like.

At some level, these are obvious reasons. But they are often extremely frustrating to strong, mid and later stage companies growing 25%+ year over year. They are maddening to mature CEOs who have built real companies that dominate their market segment but are in either an out of favor segment or using an approach (e.g. enterprise software license sales) that is no longer trendy.

In our world, none of this matters that much to us. We aren’t momentum investors. We are syndication agnostic and are happy to continue to finance strong, later stage companies in our portfolio with or without new co-investors. We are transparent with our financing intensions early in the process. We are happy to support whatever process an entrepreneur wants to go through.

Regardless, it feels like it’s going to be an insanely busy Q115.

 

  • Rick

    “Regardless, it feels like it’s going to be an insanely busy Q115.”
    .
    Unless you’re like me and can’t seem to get funding for anything.

  • Ron

    I suspect the education bubble to pop In the next 18 months.

    • No clue on this, or if there is even an education bubble. At Foundry, we haven’t had any thematic focus on education and have completely avoided the education vertical. But Techstars has had nice success with a number of companies that have gone through the Kaplan EdTech Accelerator – http://kaplanedtechaccelerator.com/. And several of the funds I’m an investor in have a few edtech companies that are doing extremely well.

      Fundamentally, it feels like we are in the beginning stages of a radical transformation in how education works at all levels. So that’s cool.

  • Drew V

    I just noticed that my first reaction is to ask what sort of industries you think will see the most activity, but then we’d get going down the “predictions for 2015” path. But I’m always interested in your opinion

    • No real clue – I think it’s pretty broad though.

  • Just curious – any specific reason for the drop in interest in enterprise software? That’s our primary focus:( I always thought, as a high margin lower cost business, it’ll be attractive to investors.

    • I should have been more precise. Investors are extremely interested in enterprise software with SaaS / subscription / MRR / recurring revenue models. They are a lot less interested in companies that have a license / perpetual sales model.

  • Greg B

    It seems that this applies mostly to mid/later-stage companies that have already raised capital – which I agree with. Do you think the same holds for seed and Series A companies? Even 2 or 300% YoY growth may not be enough for them, and I think a lot of companies at that stage will endure the “slog” in Q1.

    • Yup – my comments are on mid to later stage companies.

      Series A requires rapid growth on a MONTHLY basis (> 10% month-over-month is “price of admission).

      Seed is a totally different thing.

  • James

    I’ve been working on developing a consumer product all year, with the goal of disrupting a large stagnant market monopolized by one player, and I’m curious to hear your thoughts on raising a Seed round in Q115.

    Any advice for someone’s first fundraising round? Do you feel that traditional tech and software angel investors give consumer product companies a shot? I have our design patent filed along with our provisional patent, and should achieve my goal of finishing the first functional prototype by Christmas.


    Interestingly enough Colorado, according to our research, has the biggest per capita demand for our product category.

  • I thinking funding is going to be insane but I’m not sure for the same reasons. The US is purposely destroying Russia’s economy right now by ramping the dollar and therefore dropping oil out the floor. Several major hedge funds had margin calls on their positions in oil a couple days back and this meant total liquidation of some positions, causing a temporary drop in the market.

    The point is we’ll see more investors flocking to the dollar world wide in 2015 and that money needs to go somewhere. The Obama admin has made cyber defense a major priority coupled with our race for quantum computers and the energy is always an issue. It will be interesting to see where the money goes.

    My concern is how people can handle all this chaos on an emotional level and the price they will pay for progress in this direction.