Key insights from Mark Spoto

On capital concentrating in fewer, later-stage ‘category winners’: The surge in invested capital in Series D rounds and beyond even as deal counts fell is clearly attributable to the growth in artificial intelligence-related companies. Investors are pouring large amounts into a small number of companies perceived to be category winners. A similar dynamic is playing out in the national security and dual-use technology marketplaces.

On the persistence of protective deal terms like pay to play: Pay-to-play provisions remain persistent as companies that raised at high valuations return to market without sufficient progress. In these new rounds of financing, the pay-to-play features are often used to enforce alignment among investors. This trend has not hit the national security and dual-use markets as pervasively, and it will likely be another 6 to 12 months before it will be felt.

On the ‘barbell’ investment pattern: There is significant interest at the earlier stage and growth/later stage in the defense and national security tech market. Series B rounds tend to be the hardest rounds to raise because companies need to show real progress against a business plan. This kind of progress can be tough to demonstrate, as it can be harder to prove in slow-moving government markets.

Read full commentary from Mark Spoto

Key insights from Lily Lyman

On promising workflow automation trends: “The blend between services and software is increasingly merging, as the focus moves toward delivering the ‘work’ or ‘outcome’ to a customer versus just the ‘software to support doing the work.’”

On supporting early-stage founders during key inflection points: “The combination of empathy, candor and a strong community backing them is what makes those moments navigable – and ultimately, transformative.”

On the rebound in life sciences deal activity: “We are particularly excited about new opportunities emerging at the intersection of AI and life sciences, where machine learning can dramatically compress drug discovery, clinical trials and manufacturing timelines. The companies that win here won’t just generate insights, they’ll rewire entire workflows, accelerating science itself.”

Read full commentary from Lily Lyman

Key insights from Jeff Crowe

On what differentiates an outstanding venture capital investor: “They have a nose for where technology is going, build deep expertise in their areas of focus, grow their personal networks continuously, and exhibit deep curiosity and a ton of hustle.”

On the role of venture capital firms in the next decade: “The rise of AI means that companies must move faster, and the increase in global volatility requires them to be more nimble as they build distribution networks, supply chains and development teams that cross borders. With their own global experience across hundreds of portfolio companies and networks of executives and advisors, venture firms can help portfolio companies do both – move faster and be more nimble.”

On key trends from this quarter’s VC data: “Without positive exits, venture investors are focusing more on supporting existing portfolio companies, exploring secondary sales to create liquidity and managing expectations with LPs. Investors have less time and less appetite to make new investments – at least until the exit landscape improves and restores their confidence.”

Read full commentary from Jeff Crowe

Key insights from Alexa von Tobel

On investing in companies driving industry disruption: “We believe that venture capital – when properly deployed – is the most powerful economic engine that the world has ever seen. … Economic value truly arises when big risks are solved, and when companies create innovative products and business models – often those that couldn’t have existed previously.”

On the best way investors can add value to startups: “One of our main objectives as a team is to be our founders’ first call. We strive to build relationships with our founders that give them space to not only share their wins, but also be open about their stickiest problems.”

On key trends from this quarter’s VC data: “The recent pullback in later-stage valuations may reflect a recalibration of expectations following years of inflated valuations. We are seeing continued conviction in early-stage investing, with seed-stage valuations remaining unchanged, while investors are adopting a more cautious approach in later rounds where the risks of overvaluation are more pronounced.”

Read full commentary from Alexa von Tobel

Key insights from Asad Khaliq

On the most exciting advancements in technology right now: “Cybersecurity is unique in that progress is driven not just by technological improvements, but also by threat actors … Another area we are very excited about is edge computing.”

On trends in market terms: “Venture deals have generally trended towards some degree of standardization over the past few years. That makes sense because the industry is maturing, and therefore best practices have become clearer. As capital availability has increased, many founders also find themselves with lots of options for capital, and some terms that may have previously been more common have fallen out of favor.”

On key advice to succeed in VC investing: “The venture and startup ecosystem can be noisy, and there are a lot of ups and downs. You have to, of course, keep updating your priors and learning from what’s happening around you. But balance that with conviction and execution on your chosen strategy. I think most new venture advisors don’t appreciate how quickly your ideas and networks compound in the industry.”

Read full commentary from Asad Khaliq

Key insights from Laura Tadvalkar

On recent advancements toward human health: “We’re seeing the incredible impact of GLP-1 drugs not only for weight loss and diabetes, but across multiple disease areas, including cardiovascular, fibrosis, liver disease and even, potentially, neurodegeneration.”

On the outlook of later-stage private rounds: “Today’s late-stage private rounds might be the last round before IPO but are often intended to fund the company through one or more significant data catalysts, so investors are looking for lower valuations to make sure they get paid for taking data and market risk.”

On her approach to identifying promising founders and companies: “We always look for the ‘killer application’ that a technology is uniquely positioned to solve – and make sure that companies are funded to meaningful value inflection points, plus some buffer – because science takes time!”

Read full commentary from Laura Tadvalkar

Key insights from Chris Ahn

On the significance of up rounds representing 65% of deals: “I think we’re still making our way through the impact of 2021 and early 2022, when there were low interest rates, high liquidity and, as a result, higher valuations.”

On his approach to risk management and mitigation strategies when investing: “Because each situation is unique, and there are no predetermined answers to these questions, it is paramount that founders and investors have a shared vision for the company to help guide them.”

On his perspective on the most effective monetization models for community-based ventures: “The tried-and-true method for monetizing open source has been to create a hosted version of the open-source project, build a sales team around this product and sell it as a subscription service.”

Read full commentary from Chris Ahn

Key insights from Bobby Yazdani

On underwriters’ ongoing hesitation to invest: “[C]oming off of 2022 and 2023, I think people are just gun-shy to underwrite investments. It’s an emotional reaction to two years of brutality. So, it’s not the lack of available capital – it’s more the emotions of the capital that’s involved.”

On growing as a leader and an investor: “Experiencing failures over the past 30 years, I had the opportunity to learn a lot. And that has helped me establish a methodology in terms of my selection and underwriting processes.”

On adding value to a professional environment: “I don’t want to occupy a room because I have the loudest voice. I want to occupy a room because I have something worthwhile to offer in terms of my knowledge and my know-how.”

Read full commentary from Bobby Yazdani

Key insights from Genevieve Kinney

On the initial public offering (IPO) markets as we look ahead to 2024: “We think some of the larger enterprise companies will wait on additional clarity in the economic environment to make moves on an IPO … we expect to see more significant activity in the early second half of 2024, as companies seek to go public in advance of the 2024 election and when we have another two quarters of economic data. Performance of public companies and the broader equity market will be key factors in companies’ willingness to go public; however, public investors will need to grapple with investment opportunities in undervalued stocks with proven track records and new issues that have – unfortunately – had spotty trading records when looking at recent IPOs. We think the bar is very high for companies that are looking to maximize value at IPO and maintain consistent trading performance, and those that aren’t in a rush will continue to wait it out until Q4 2024 or, more likely, 2025.” 

On the less-than-positive changes in the software as a service (SaaS) industry: “The democratization of the SaaS business model has enabled tech ecosystems to form and flourish around the world, but increased competition and investor sophistication has continued to make funding more difficult to obtain. The positive is that many companies in this newer SaaS cohort are stronger, more efficient and more profitable than those before them.”

On the trend of mid-stage rounds being down: “Market uncertainty over the fundamental stability of the economy, direction of monetary policy and outlook for corporate earnings have made mid-stage growth (particularly Series B) challenging to underwrite over the last six months. With limited execution proof points in the businesses, and a longer path to exit with an unclear view on where multiples stabilize, we have seen investors move in a barbell fashion to earlier, founder investments, or enter into later-stage businesses that may be doing down or structured rounds or offering secondary at a discount. In both cases, investors have been looking to mitigate their risk in either capital invested or valuation.”

Read full commentary from Genevieve Kinney

Key insights from Steve Harrick

On public financing in Q3 and Q4 2023: “There is still a lot of capital available that has been raised by venture funds, but it is a difficult deal environment when the last round prices were as high as they were in 2020 and 2021.”

On investor attitudes toward AI: “Our belief is that the value from artificial intelligence and machine learning will be enormous, but it will play out over the next several years.”

On investor reactions to market contraction: “What is different from some other cycles is – although the tourists have left, as they usually do when markets contract – the consistent venture practitioners raised a lot of money that will eventually need to find a home.”

Read full commentary from Steve Harrick

Key Insights from Julie Yoo

On predictions about the healthtech industry: “Software is (finally!) absolutely eating the healthcare world. In fact, the nature of the major challenges that the healthcare industry has faced in the last couple of years … are so conducive to software-based transformation that we have more conviction than ever on our core thesis.”

On why we are seeing a downward trend in investments in technology and life sciences companies: “Many growth-stage companies raised large enough amounts of minimally dilutive capital in 2021 and early 2022 that they had enough runway to live through this window without having to raise.”

On why deal terms remained stable while invested dollars, deal volume and up rounds are on the decline: “Early-stage deals tend to have less deal term structure, so we’re most likely seeing cleaner terms since most of the deals that got done in Q1 were in the earlier-stage zone.”

Read full commentary from Julie Yoo

Key insights from Kate McAndrew

On recent trends in early-stage financings: “[T]he fundamentals of investing and company building are coming back. For the most part, pre-seed rounds have reset to be in the $750,000 to $2.5 million range and priced in the $5 million to $12 million post-money range.

On growing a startup in the current economic climate: “[L]ean times make for lean teams – and that is an asset in the first years after company formation. It forces founders to determine who and what is essential. It makes for a focused, customer-obsessed culture. Those values will help you grow, scale and endure.”

On building relationships with founders and mentoring companies: “A big part of this work is personal. I try to get to know founders as whole people, not just CEOs or CTOs, and to build a real relationship with them. … And then, honesty is vital. … Ultimately, you need to be able to tell founders hard truths and be very honest about what is working and what is not.”

Read full commentary from Kate McAndrew

Key insights from Matt Sacks

On the future of the Midwest’s innovation ecosystem: “Over the past decade, the size of the venture capital industry has expanded at a remarkable pace. … We believe there is a tremendous opportunity to be a capital provider to the early-stage innovation ecosystem in the Midwest and help this market develop.”

On disruptive technology trends in the Midwest: “[W]e find that the Midwest ecosystem generates a significant number of exciting startups attempting to disrupt categories like steel manufacturing and commodities trading.”

On the growth of Chicago’s VC market: “To truly achieve scale, a startup ecosystem needs to nurture an appetite for risk and acceptance of failure, have great research institutions and strong engineering talent pools, have a series of successful prior-generation companies that created significant value for those involved, and importantly, have enough early-stage capital providers willing to embrace risk.”

Read full commentary from Matt Sacks

Key Insights

On various sub-segments in Web3: “There are commonalities within the sub-segments due to a shared ethos around concepts like decentralization and uncensorability. But the various sub-segments are fundamentally tackling different problems.”

On disrupting traditional industries: “[E]very participant in every creative industry is looking at Web3 and asking the question: ‘What does this mean for me?’”

On Web3 changing the investment landscape: “A fundamental principle that’s been adopted by Web3 builders is that value should accrue to the community that adds value to an ecosystem rather than to a small number of investors and builders in the ecosystem.”

Read full commentary from Frank Rotman

Key Insights

On valuations and later-stage investments: “As a growth investor, I believe the valuation environment puts a bigger onus on us to make the right calls on investments. … We have to make sure we are picking winners who will grow into and beyond their valuations.”

On the Bain Capital Ventures platform: “Everyone on the Bain Capital Ventures team is laser-focused on one or two sectors. … Because we spend a lot of time in our areas, we like to think we can disproportionately support and contribute to the success of our portfolio companies.”

On embedded marketplaces: “We believe that the future of vertical SaaS will be defined by embedded financial services and embedded marketplaces. … We are seeing embedded marketplaces pop up everywhere – in software for construction, spas and salons, restaurants, financial institutions … the list goes on.”

Read full commentary from Merritt Hummer

Key insights

On the pace of the market: “The use of technology has been paramount for companies, organizations and institutions to operate through an unparalleled period. This has led to increased purchasing, growing company revenues, and further capital allocation and investment at record levels.”

On founding BLCK VC: “[A]s current Black venture capitalists, we could see the reliance on personal networks for access to roles at firms, but also the reliance of these networks to drive deal flow, were creating structural barriers for the Black community.”

On upside and impact: “The current system, as it is, is leaving huge economic upside on the table largely because networks haven’t evolved. The reality is that companies that prove successful are global – and to be global, you need to be diverse.”

Read full commentary from Frederik Groce

Key Insights

On going back to basics this year: “HMI made its first investment in early 2009. … Everything was for sale, and the experience taught us some important lessons – prioritize the best ideas and then invest in those with conviction, focus on high-quality businesses that can compound through cycles, and think about investing outcomes as probabilistic rather than single pathways.”

On a robust deal environment: “Q4 was the most active quarter we have seen in years. We believe the fourth quarter generally had more deal flow than usual due to political uncertainty and high valuations, coupled with lots of capital, making for a good supply-demand setup.”

On putting money to work right now: “We’ve been selective, focusing on great companies that can grow for a decade or more. The base rate for decade+ compounders is not amazing, but if you can find them, your entry valuation doesn’t matter so much. If you’re wrong, it’s a different story.” 

Read Full Commentary from Sean Barrett

Key Insights

On valuations moving forward: “While the amount of capital in the system is so high, it’s discerning in nature, and some of these rounds that were done based on forward multiples last year are going to be hard to clear if growth expectations aren’t met or customer demand tapers off.”

On late-stage investing: “The 0.01% of these [very high-quality, fast-growing] companies are almost in the ‘I-can-name-the-price-I-want’ mode, and they’ll often get it in the private markets (within reason) if the growth and efficiency are there.”

On evaluating new investments during the pandemic: “The way we’ve gotten comfortable has honestly been scheduling time for unstructured conversations. … Having some dedicated social time makes a difference.”

Read Full Commentary from Logan Bartlett

Key Insights

On executing deals in the pandemic: The venture capital market is very connected. Although, for instance, Vietnam has managed COVID really well, it’s still difficult to fly to that country from Singapore or Indonesia. This makes doing deals in these markets nearly impossible even with COVID being managed.

On building a portfolio in an evolving market: As a firm, we have always looked closely at consumer behavior across Southeast Asia. … Leveraging data allows us to follow these trends closely and find investment opportunities accordingly.

On which COVID adaptations may be here for good: Currently, our investment team spends more time on desk research. This is an interesting development, because desk research and expert reviews give a more neutral view on the scalability of a business. Deeper research will definitely remain an important part of the investment process.

Read Full Commentary from Michael Lints

Read Full Report

Key insights

On how US/China trade tensions are impacting VC investing: China tech and healthcare investments into the US have dropped 90% as a result of trade tensions. In the meantime, more European and Southeast Asian companies are fund raising in China.

On the economic impact of coronavirus: Many businesses are adversely impacted given China and, increasingly, many countries across the globe are taking a cautious approach to control spread of the virus. The financial market had its biggest drop since 2008. In some sectors, we have seen an uptick in their business, including online education, food delivery and, in the healthcare sector, diagnostic and lab tests, to name a few. Companies that have filed for an IPO have delayed, as it is difficult for management teams to go on roadshows with the quarantine requirements. We had a Shanghai Stock Exchange Science and Technology Innovation Board (STAR Market) virtual IPO recently, where the official ceremony was postponed but the trading of the stock began and performed very well. We hope things will be back to normal soon.

VC deal terms favoring investors: The investment pace has definitely slowed down in Q1 in China, but we are still seeing activities as investors perform their due diligence online and through video conference. One of our companies just closed a $100 million round, and one received six term sheets last week. 

Read Full commentary from Nisa Leung

Key insights

On asking for help from your investor: Repeat entrepreneurs ask for help more frequently. When you need help, ask for it. That’s what we are here for.

On building and retaining fans of your business: Having advocates in your customers, your employees and your board is paramount to your success. As you grow, keeping these people on board is even more important.

On company growth potential: I often ask entrepreneurs: “If your company had $30 million in the bank, what would you be doing differently?” If their answer sounds like a solid and promising growth trajectory, then why aren’t we pursuing that path?

Read full commentary from Anna Patterson

A few highlights

On technology companies driving valuations to historic highs: “Software is eating the world, and it has a voracious appetite. … Against a backdrop of sweeping technological change, the right companies have an opportunity to be truly gigantic.”

On European deal term trends: “This feels like a healthy place to be. Entrepreneurs are no slaves to investors, but, equally, investors are able to exercise appropriate fiduciary responsibility on behalf of their own backers.”

On how Brexit could affect the UK startup community: “My biggest long-term concern is that a hard Brexit and nationalistic rhetoric will fundamentally damage Britain’s hard-earned reputation as a welcoming, supportive home for ambitious folk from the world over.”

Read full commentary from Suranga Chandratillake

A few highlights

On the current market: “It’s an ebullient time with plenty of cash in the ecosystem, rising valuations and – importantly – a huge wave of liquidity.”

On the future: “It feels like a gold rush mentality amongst investors right now, who are willing to fund pretty much anything that moves. What matters is how long that lasts, and it certainly can’t last forever.”

On Lux’s strategy: “Our preference is to invest in areas where we can maintain some price discipline. This means pursuing ideas that may be unpopular or outside others’ domains or, in some cases, ideating and funding companies at inception.”

On the proliferation of venture capital: “It’s not just a great time to be an entrepreneur, but a great time to be a new GP, in that you’re seeing thousands of new firms get started with individual partners from larger organizations branching off on their own or angel investors starting to institutionalize.”

Read full commentary from Zack Schildhorn

A few highlights

On the atomization of seed rounds: Often founders are raising multiple seeds – sometimes raising their institutional seed after already raising over a million dollars, whether through a “friends and family” round or a pre-seed round.

On the availability of capital: I think capital constraints are good for a company and a founder to force them to stay focused on proving the core hypothesis instead of spreading their resources and team over many different [ones].

On consumer tech: We’re actually seeing a lot of consumer companies that aren’t software based and instead operate in the real world with physical assets. … For us as a tech VC, it feels like that’s on the edge of our investment thesis.

Read full commentary from Hayley Barna

A few highlights

On deal terms: The pendulum is definitely favoring entrepreneurs and founders, which in life sciences also typically includes venture creation-focused investors.

On shifting dynamics: These trends bring life sciences terms closer to where technology terms have been in recent years – where companies and entrepreneurs have many options to play off each other.

On pharma deal flow: There’s been a real disconnect between pharma partnering and the equity capital markets recently, in particular around M&A. … If the equity markets cool considerably, I would anticipate an increase in pharma dealmaking. 

On market outlook: I think we’ll see a cooling of venture financing and public offerings through the end of 2018 with a likely resurgence in early 2019 as markets stabilize and IPO activity picks up again.

Read full commentary from Bruce Booth

A few highlights

On deal terms: Generally, the terms have been company and entrepreneur favorable for a long time now, and they continue to remain that way.

On the proliferation of late-stage investors: It’s created this downward movement on stage of financing, and therefore upward pressure on what a normal Seed or Series A round looks like.

On Bessemer’s response to the influx of capital: We’re doing a lot more earlier-stage investing. The key to moving earlier is to know when to double down on your winners.

On fewer IPOs: There’s a lot more talk about companies staying private, and I don’t necessarily think that’s a bad thing … by definition if you have more time to mature, you should be more predictable and stable in your growth profile and earnings potential, which is generally more attractive to public market investors over the long term.

Read full commentary from Stephen Kraus

A few highlights

On his market outlook: Overall, I am extremely bullish as technology continues to be a major contributor to the US economy, and I do think disruptive technology and business models will continue to change many aspects of healthcare, consumer and enterprise opportunities.

On valuations: With so much capital deployed over the past several years, valuations seem to have cooled for some companies needing more time to get aligned with the “rule of 40” metrics.

On sector trends: There continues to be a demand for breakout enterprise security opportunities, multitenant cloud-based applications, artificial intelligence augmentation and robotics. We also see a huge white space in solving real-world consumer problems like urban mobility, living spaces and the future of work. We’re also tracking innovative technologies that will make healthcare more personalized, efficient and cost effective.

On exit routes: I expect, based on 2016 and 2017 data, that more often than not, companies will go the M&A route.

On M&A: Q1 2018 saw a huge increase in the tech M&A market from non-tech buyers. Transactions led by non-tech buyers nearly tripled from Q4 2017.

Read full commentary from Anna Patterson

On market fluctuations: Investing is a cyclical business, but we continue to feel good about our outlook because we generally take a long-term view, backing seasoned management teams and differentiated technologies with significant capital to weather transitory fluctuations.

On SoftBank’s position: The thrust of where we play the best, and where we are the best partner, is where we are going to become a patient, strategic shareholder and partner to management teams and earlier investors that are willing to take a long-term view with us.

On M&A: With tax reform and the repatriation of cash, M&A should continue to be robust. That’s also an opportunity for us as we look for strategic partners for our portfolio companies.

On cautious optimism for 2018: It doesn’t mean that we’re not cautious. We are highly selective in our investments, but, at this point, we are cautiously optimistic about 2018.

Read Cooley’s full interview with Michael Ronen on Cooley GO.

In the fourth quarter of 2017, both deal volumes and aggregate dollars raised remained robust and consistent with prior quarters. Cooley handled 246 disclosable deals representing more than $6.2 billion of invested capital. The invested capital figure was the highest quarterly number we have seen since the inception of this report 14 years ago.

For the overall year, we handled 945 disclosable deals representing more than $19 billion of invested capital. These numbers again reached levels not seen for 14 years of reporting.

In Q4 2017, transactions did show a slight decrease in median pre-money valuations from prior quarters. During the quarter, median pre-money valuations decreased across all deal stages with the exception of Series A transactions. Late-stage financings saw more significant valuation decreases from prior quarters. This may point to a cooling trend around late-stage private company valuations as we move into the new year.

Overall deal terms remained company-friendly. In Q4 2017, the percentage of deals with no participating liquidation preferences reached 88% of transactions. We also witnessed a decrease in recapitalization transactions and the utilization of drag-along provisions.