In startups the mandate is simple: move fast. And startups are moving faster today than they were, perhaps ever. But all that growth costs capital.
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Crunchbase News analysis points to a rapid acceleration in venture funding worldwide. The time between successive rounds of venture funding is getting smaller, meaning that companies are able to raise money at a faster clip. But what does “faster” mean here?
In this case, we’ve calculated the time between successive rounds of funding. For example, the time elapsed between a Series A round struck in January 2015 and a Series B round announced in January 2017 was 24 months (about 730 days). We found the amount of time between over 17,000 pairs of rounds—ranging from Series A to Series E—in Crunchbase.1
Below, we’ve displayed the average and median time between venture rounds based on aggregated data from the past 18 years.
Over the years, a consistent trend emerges. On balance, companies raise money at a fairly consistent pace. Although a Series B round is larger and thus typically goes a little further than a Series A round, the differences here are small, on the order of a month or two.
As the chart below shows, the amount of time between rounds remained fairly consistent over time, until recently. But you’ll notice something interesting emerges when we group our data based on the year in which the next round was announced. The time between rounds shrank back in recent years, with later-stage deals leading the charge downward.
In other words, the market is accelerating.
There are a few possible implications to the acceleration of the venture market:
- There’s a lot more buy-side liquidity, as demonstrated by the spate of big venture fund raises so far in 2018.
- Companies are able to get traction and need to scale earlier on in the lifecycle.
- Companies may be less capital efficient now than they were previously, which would require faster capital infusions than their predecessors.
It also appears as though the acceleration might itself be accelerating. The set of Series B, C, D, and E rounds raised in 2016, averaged together, were announced around 585 days (almost exactly 1.6 years) after the prior round. That’s 68 days faster than 2015’s crop of new rounds. 2017’s rounds were announced an average of 137 days earlier. 2018’s rounds, so far, are announced an average of 275 days (just 0.75 years) after the prior rounds. That’s 173 days earlier. The time between rounds is decreasing at an increasing rate.
This means that for 2018 so far, several companies have raised two (or more) successive series of venture funding. There are some crazy-hot sectors (like electric scooters) where slugs of fresh capital are delivered in absurdly rapid succession. For example, in mid-October, German scooter service TIER Mobility announced €2 million in seed funding and, merely eight days later, announced a a €25 million Series A round. U.S.-based scooter competitors Bird and Lime have each raised $400 million or more across two venture rounds apiece so far this year.
But there are comparatively quieter sectors outside the media limelight where companies have raised multiple rounds this year. We’ve covered a few of them recently.
This week, cloud communication infrastructure builder Agora.io raised $70 million in a Series C round led by Coatue Management. In June, the company raised $30 million to extend its Series B round. Also this week, neighborhood surveillance service Flock Safety raised an additional $10 million in a new round of funding less than three months after raising $9.6 million.
That sort of funding velocity would be nigh unheard of just a few years ago.
I’ve heard it said that a startup is more likely to die of indigestion than starvation. Too much capital leads to excess and enables reckless pursuit of expensive and ultimately fruitless boondoggles. Too much capital can drown a business.
So it’s interesting then that the revolving doors of Sand Hill Road and there regional equivalents are spinning faster and faster, with founders funneling tens (or hundreds) of millions of dollars into their companies.
Like how gavage (i.e. force-feeding) produces highly valuable foie gras, all this VC money is, ostensibly, creating some value, even if only on paper.
Illustration: Li-Anne Dias