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What’s Happening in the Markets: the Real Data

Danielle Morrill, CEO of Mattermark, has been analyzing trends in venture funding for years. And she’s here to tell us whether we really should be worried about a funding crunch – and what to do about it.

DataFox provides summaries of every single panel at SaaStr 2016, all published within a day of the panel itself. If you miss the tactical theater or strategy stage, are networking on the ground, or didn’t get a chance to attend this great conference, we’ve got you covered.

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Special thanks to Jason Lemkin of SaaStr for putting on this conference and giving us the chance to publish these summaries.

In a nutshell:

  • Funding is at historically high levels, but signs point to a decline from 2015’s high water mark.
  • Private funding typically mirrors public funding, so expect turbulence in VC funding as stock markets falter.
  • If you’re thinking of raising money in 2016, start the process now.

Historical perspective

Over the past 10 years, the number of funded startups has risen 3x– and capital deployed has risen 6x. That’s a pretty encouraging statistic, especially considering the boom times of 2006. For all the talk of belt-tightening, historically, we’re doing all right in comparison to 2001 and 2008.

Today’s funding climate

According to Mattermark data, though, funding in 1Q2016 is down a full 23% from a peak in 3Q2015. That’s a pretty significant drop. Morrill notes that January 2016 kicked of the fastest pace of fundraising in the past decade, but that’s largely driven by huge rounds raised by Lyft and Uber. For the everyday founder, the funding climate is less than inviting. Private funding levels react strongly to public markets, Morrill notes, and the public markets are looking pretty shaky.

Morrill took a deep dive into early stage funding, noting that Series A fundraising is still on the rise, but that number includes debt financing, not just equity. And the days of sitting back and watching VCs fight to fund your company like you’re the only hot date in town are over – money still flows, but the market is much more competitive. This trend, Morrill predicts, has begun with Series A companies and will soon cascade to Series B startups and later.

So what should we do?

If you’re a founder thinking of raising capital in the next year, Morrill recommends you start the fundraising process. Now. Relationship-building, wheeling, dealing and comparing offers can take months, and in an uncertain funding climate, you can’t start too early. The alternative, she argues, is “cut and burn” – lay off your team and watch your cash reserves dwindle.

This is in stark contrast to Lew Cirne of New Relic's panel, who argued that many startups are overcapitalized and taking a small amount of funding can be a blessing in disguise, forcing you to build a solid business from day one, and giving you the reserves to survive a broader funding crisis.

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