Millions in Minutes : The Zoom Boom in Covid Era Startup Fundraising

Fundraising is one of the most critical aspects of any startup. You need the runway to “burn” through the learning phase (products to product market fit) as quickly as possible as you work to scale your business.

Because otherwise you’ll never catch (and ultimately conquer) the incumbents.

Because some businesses simply NEED outside funding to get started — good luck self funding a space or autonomous vehicle company by yourself unless you’re Elon Musk (and even he had to “cheat”).

And although many worthwhile projects would benefit from external funding, securing venture capital has been anything but easy for most founders since its inception in the 60s. Unfortunately, much of the process (i.e. pitching dozens of investors and finding your way into GP-filled boardrooms) was all about who you know. Having a rich ex-Googler neighbor, a pal from Stanford or an old boss turned banker were the unspoken key to reaching the real money. But there were plenty of other barriers as well, because VCs were “too” important to take cold pitches. Some/many even prided themselves on skipping the practice altogether, instead saying, “if you’re serious, you’ll manage a warm intro.”

As if everyone had the same Silicon Valley network or was part of the same “tech bros” circle.

Silicon Valley VC tech bros

Which is a big part of the reason funding disparities for female and minority founders are so great. As an exaggerated rule of thumb, rich white dudes from Stanford and Harvard mostly knew other rich white dudes from Stanford and Harvard… i.e. the fraternity effect.

Venture Capital Female Funding Disparity

Especially when something like 90%+ of all VC firms were on Sand Hill Road.

But what about the other 99.6% of US grads that didn’t graduate from an Ivy League (or the 67M+ that didn’t graduate college or the 7.5B+ that live outside the US), didn’t have the PE or Wall Street background and didn’t live within a few square miles of a California tech campus?

Does that mean they don’t deserve a shot? Even if they’re building a killer product that serves a massively underserved market — like themselves, or women, or minorities, or anything that isn’t mainly targeted at Stanford tech bros?

The rest of the world sounds like a pretty big market, which is always a great thing for venture.

But only if you can get the meeting.

How Traditional Venture Funding Works(ed)

Here’s how startup fundraising used to work, at least for founders going the cold outreach approach:

You’d start by sending your pitch deck to a venture firm (here’s a guide on creating a perfect pitch deck btw) and crossing your fingers that the analyst that read it (along with the dozens or hundreds of others they had to scan that week) thought it was worth meeting you.

If they did, you’d probably need to fly into Silicon Valley to meet the analyst where you’d have ±30 (max of 60) minutes to pitch and wow them enough to share the deck with a partner. (And of course while you’re there, you’d try to make the most of your time and ticket costs by visiting all the other firms along Sand Hill Road and hoping for a lucky break).

Back at your original firm, if the analyst’s description of your startup piqued a partner’s interest enough, you might get a second in-person meeting. At least this time you’d be with someone who actually holds some weight.

But then you still need to convince them you’re worth taking a risk on to present to their partner meeting next week. You might even get to come to pitch yourself.

To make matters even more complicated, every venture firm has their own process for approving investments. Some want consensus (or close to it) while others require only one partner’s devoted conviction. Either way, everything’s still up in the air for you as a founder.

Imagine, so far you’ve had 3+ in-person meetings, possibly flown halfway around the world, spent money you didn’t have on a 1-star hotel and some real cheap Ramen, and still have no idea if you are going to get a term sheet…

And even if you do, the terms were often (at least pre 2000–2010 timeframe) anything but founder friendly. Measly valuations, lots of preferred shares and board seats and little in terms of security for you as the founder.

That said, you had to take what you could get, because you were from South Dakota, South America, Spain… whatever.

Anyone that told you that funding was democratized was full of shit. How could it be? Location alone was enough to filter out the ±95%+ of the world unable to afford a ticket to the “tech mecca” that was Silicon Valley.

Which only perpetuated the problem as companies with access to capital and talent exploded in size and valuation, gobbling up everything in their quest for growth and domination. Those companies then IPO’d or got acquired, creating thousands more angel investors in the Silicon Valley ecosystem and accelerating the flywheel further.

Silicon Valley pretty much had achieved unassailable takeoff velocity…

Right up until Covid that is.

Covid-19 Changed Everything

Suddenly, we weren’t allowed to meet one another and it took just as long to read and evaluate a pitch deck, whether or not it had an SF IP address. Suddenly, investors were forced to consider only the content and quality of the presentation and idea, not the in-person charisma of the founder.

And lucky for you, if they wanted to learn more, it was a Zoom call away — regardless of where you were based. It’s not like you could shake hands anyway.

While it is so clear in hindsight, all of this didn’t happen overnight. Many venture firms held off investing for a while, hoping for a return to normalcy, a return to meeting the founders in-person, shaking hands and talking deal terms.

Until the pandemic dragged on and on and on.

Eventually, even the most stubborn of investors were forced to adapt. Forced to send out terms sheets without ever actually meeting the founder(s) in-person — at least if they wanted to compete with the other funds and continue to grow their management fees.

All of this had a massive democratizing effect on the access to venture capital. Suddenly, startups everywhere were on more equal footing, able to compete without sacrificing a week/weekend and hundreds of dollars in the process for the hope of a single investor check. What once took stress-inducing, bank-breaking days of travel and constant hustle was now reduced to hours. And you could do the calls from home — you didn’t even need pants.

But the death of in-person meetings was only the start of Covid’s ripples through the startup funding landscape.

Because digital’s way faster than analog.

One-Click Instant Investments

There are two sides to every coin. And as a consequence of startups having better access to the best investors, investors also had better access to the best startups.

The investors that embraced digital-first investing had more and better deal flow than ever as wave upon wave of promising startups and pitch decks came in. (Here’s how you craft your attention-grabbing pitch deck. Or, if you prefer, we could just work together :).

There was only one problem — time. Investors who’d always had time to evaluate deals (because the funding market was much less competitive and many firms operated on the model described above) were forced to make much faster decisions or miss out on a round entirely — especially with companies like Docusign and Assure SPV making the process for collecting investments streamlined and seamless.

And it is important to know that in venture, there is only one capital sin — missing out on the company of a generation. There is an enormous FOMO, or fear of missing out, because a single company can (and often does) make or break your fund.

For example, since Uber’s $49M Series A valuation, the company’s over 1000x’ed (as high 2387x at peak) its market cap and returned Benchmark’s fund something like 30+ times over.

Uber's Private Market Startup Valuation

You cannot miss that.

Which means speed is everything.

Enabling More Investors to Get into Venture

But that’s not all. What about the destruction of demo days? Suddenly, recent accelerator grads from prestigious places like YCombinator, 500Startups and TechStars (many of whom participated in remote programs anyway), rather than pitching in front of a select group of several hundred plus angels and VCs at the end of the program, had access to accredited investors across the globe thanks to a new wave of Remote Demo Days. (Speaking of, if you’re an accredited investor and are interested in access to more quality startup deal flow, apply here to join our vetted investor group).

Which enabled even more angel investors and institutions to get into the game of venture as the pot continued to grow.

And grow.

And grow.

VC Fundraising and New Funds Created

Today, the venture ecosystem is larger than it’s ever been. Valuations, round sizes and the number of companies being funded are at massive all-time highs.

Startup Valuation Deal Size

Which is great for founders and fund managers — By the way, if you’re looking for someone to thank, thank the Fed (and governments) everywhere.

The Macroeconomic Drivers of Venture Capital

Since the Coronacrisis’ first outbreak in March of 2020, governments have raced to react, some better than others. But one thing remained constant, at least amongst “first-world” countries able to afford it: economic stimulation in the form of printing more money. LOTS of it.

Covid 19 Stimulus
Source: McKinsey — As of June 2020

In fact, as of March 2021, the US alone (not to mention every other country — Source) had put $9.7T new dollars (Covid relief + quantitative easing) into circulation worldwide. That is trillion with a T. That’s stimulus on an unprecedented level. And as to be expected, it’s being spent, although not necessarily on what it was intended for.

Because when there’s essentially free money being minted daily and interest rates hovering at 0%, investors are seeking alpha (whatever risk and return they can), mostly in the public markets. Which is why the stock markets are hotter than ever, despite mediocre performance by many companies.

S&P 500 Market Index
S&P 500 Price Index by Year

And with the pure quantity of risk-seeking capital being printed everyday, there is a massive spillover into the tech sector and private markets (two of the highest performing asset classes in recent memory). Which leads to larger and larger venture firms being formed to deploy increasingly more capital and bigger valuations as more money is poured into startup investing.

Global Venture Capital Deployment

If it sounds like a gold rush, that is because it is. Investors are funding anything with outsized risk-reward potential (i.e. upside) in an effort to diversify away from what many view as overly speculative and inflated public markets.

Which brings us back to fundraising for your startup.

So, take a second and ask yourself: What are you really building?

And could venture capital be the rocket fuel your company needs to hit hyperdrive?

Because if it would, or if you’ll probably have to raise money within the next 2–3 years, I would consider moving up your timeframe. A gold rush is only great while it lasts. And this one will only last as long as governments continue printing money (i.e. bailing out rich public market investors by artificially inflating the markets).

There is a crash coming for sure.

There is too much speculation in the markets and tech.

The US housing market is extended beyond its 2008 excessive levels.

US Housing Price Index
Source: GlobalPropertyGuide.com

National debts are ballooning out of control.

Student debt in the US is at an all-time high.

Relations with China and the rest of the world supply-chain-wise have never been more complicated or strained.

And then of course, there’s Covid…

Needless to say, everything is up in the air. And when you’re a startup founder trying to change the world, the last thing you need is instability and uncertainty clouding your roadmap — you’ve got enough as it is.

Said another way, if I was in your position, I would take the money and run — as much as you can. I know conventional wisdom is to raise as little as humanly possible to avoid dilution, but sometimes, rules exist to be broken.

You’ll be glad you have a war chest when the tough times come. And they will come. It is only a question of when and if you have the capital firepower to survive. Because:

Startup Fundraising Valley

Will you be ready?

Are you struggling to raise funding or want help with your pitch, your deck or supercharging your business’ growth to maximize your valuation? If so, I’d love to chat.

And if you’re not sure if fundraising is right for your company, don’t know what investors want to see in your pitch deck or aren’t sure who you should raise from, I’d recommend these three posts: