⛄ Fundraising in December ⛄
The general advice given to founders is to not start a fundraising process in December. Why?
Greetings! How is it already December??
💭 Thought Bubble: Fundraising in December
‘Twas the week(s) before 🎄 Christmas, when all through the firm not a creature was stirring, not even an intern…?
If you’ve scrolled through VC Twitter (aka X) or received any kind of fundraising advice, you might believe that no VCs work between Thanksgiving and New Year’s. While most VCs aren’t taking off that whole time span, there is seasonality to fundraising and the general guidance to not start fundraising in December is good advice.
A VC’s job isn’t entirely about making new investments. There are a slew of admin tasks that happen behind the scenes, in addition to managing portfolio companies and LPs. Because the end of the year usually brings about some level of reflection, many VCs will leverage this time to catch up on firm housekeeping responsibilities, strategize for the next year, and for larger firms, maybe even conduct performance reviews. All of this takes time away from new deal flow.
The big challenge this time of year is scheduling. Key firm decision makers might be on vacation, while the rest of the members of the team might be focused on other firm priorities and juggling more family and social demands. This translates to more time between calls and an elongated diligence process.
A critical part of fundraising is building momentum, with time often being the enemy to achieving this. The more time that elapses without progress on the round, the more suspect investors will be that there is something amiss with the business. Yes, this is the VC herd 🐑 mentality at work, but it can unfortunately be a realty.
All of this assumes you’re even able to get a meeting with a new investor in December. Many firms we know make a decision in late November on the deals they’ll work on for the remainder of the year. Some won’t take new intro conversations during this time as they’re deep in diligence with other opportunities. The end of the year, much like momentum, forces investors to make a decision.
Ultimately, it’s the founder’s decision to decide when to fundraise, but unless there is a compelling reason to launch a fundraise after Thanksgiving, time in December is likely better spent on research and preparing to fundraise, such as refining the pitch deck and curating a list of target investor intros to go after in the new year.
🌱 State of the Pre-seed and Seed-stage Market
Based on survey data from over 70 VCs, Forum Ventures released their latest report on the state of fundraising for B2B SaaS ventures. It includes sections on pace of deal making, valuations, and how founders can increase the odds of getting to a yes. Survey respondents had good comments on headwinds and tailwinds within these sections. For example, one of the tailwinds cited for the increased pace of deal making is a “higher chance of companies maturing into a bull market”.
STV Take: This report is very digestible, and because it is focused on the Pre-seed and Seed stages, it has specific, useful insights for founders at the earliest stages. One noteworthy stat that brings a bit of optimism to the fundraising discussion is that nearly 70% of the investors surveyed either saw no change or an increase in the pace of deal making in 2023.
🌐 State of the Markets: SVB’s Innovation Economy Outlook
Silicon Valley Bank, now a division of First Citizens Bank, released their H2 2023 report, which covers a lot of ground in 30 slides. Notable sections include fundraising, in particular dry powder stats (slide 11) and the trends around valuations (slide 14). The other fascinating section is the potential percentage of companies that are likely going to need to fundraise in the next twelve months (slide 16).
STV Take: If you can get past the irony of the treasury management section 😅, this is a solid report with some interesting data points. One of the themes that emerges is just how much of an anomaly 2020 through 2022 were. We have talked about this before, but when you compare the state of the market now to two years ago, it can feel bleak. But, in the context of the last 15 years? It’s not that bad. For example, VC investment in US based companies has fallen from 2022, but it’s still in line with 2019 funding levels, which was historically high (see chart below).
🧨 Why VCs Aren’t More Contrarian
Ed Sush recently discussed on X the nature of contrarian bets in VC and why they’re so hard for investors to make. Ultimately, as you can probably guess, it comes down to incentives. While being contrarian is ideal in the long term, the reality is that the pressure for short-term progress and the need for quick portfolio wins make it challenging to take unconventional paths. The industry's long feedback cycles clash with the demand for rapid career development and portfolio progress, pushing many VCs to opt for safer, consensus-driven investments in high-profile companies and trendy sectors.
STV Take: The bravado of many VCs can mask the fact that most are under intense pressure to raise money from LPs, win deals, and overall advance their track record to enable them to keep investing. I think it’s important for founders to be aware of the (sometimes perverse) incentives that undergird an investor’s motivation. It can be helpful in understanding why certain decisions get made the way they do, while also (hopefully) helping founders strengthen the pitch and fundraising process.
😴 Decompression Zone
It’s always fascinated me how different species rest. Plus, one of my dreams is to see a penguin colony in the wild, so this study in Science caught my attention. It found that chinstrap penguins “nodded off >10,000 times per day, engaging in bouts of bihemispheric and unihemispheric slow-wave sleep lasting on average only 4 seconds, but resulting in the accumulation of >11 hours of sleep for each hemisphere.” One of the big takeaways from the article is that microsleep might actually be beneficial, especially for species that are usually considered prey and need to be consistently alert.