Happy Halloween!
Angel List Ventures in partnership with Silicon Valley Bank released a report on the state of early stage venture investing and startups in the United States as of Q3 2021, it is jam packed with interesting data.
A couple of things that jumped out to me were the following:
Valuations for startups have been increasing across all stages, but the increases are most pronounced at the later stages, series B rounds and beyond.
See the logarithmic chart below.
From Angel List, “because averages can be skewed by large outliers, we also reviewed valuations by percentile rank in 3Q21.... For startups in the 50th percentile (median), pre-seed companies raised at a valuation of $8M, seed companies raised at a valuation of $15M, Series A companies raised at a valuation of $60M, and Series B companies raised at a valuation of $200M”.
For comparison purposes, when I first began Angel investing in 2014 pre-seed was $2-4M, seed was $4-8M and series As were $20-30M.
This begs the question of what is driving valuations higher?
I think that ther are two primary drivers of the valuation inflation. First, startups have adopted a capital light operating model, a model driven by software that has a zero net marginal cost per unit sold. This model has tremendous leverage built into it and markets are repricing venture rounds to reflect it.
Second, venture has also been the benificiary of investors being pushed out the risk curve in search of returns as global central banks continue zero interest rate policies (penalizing savers) and quantitative easing programs. In other words, there is more money chasing venture returns than ever before, hence higher valuations.
THE RISE OF BLOCKCHAIN:
Another chart that caught my eye was the one below that shows investments accross various sectors. One sector clearly stands apart from all others, blockchain / crypto.
Angle List reports, “capital deployed into blockchain / crypto startups skyrocketed in 3Q21…. while blockchain / crypto investments only made up 5% of all deals on AngelList in 3Q21, these companies collected a whopping 16.6% of all deployed capital. Compare this to 2Q21, when blockchain / crypto companies collected 7% of all deployed capital and accounted for roughly 3.5% of all deals”.
Angel List continues, “the largest amount of deal share once again went to FinTech startups (7.84%, down from 8.67% in 2Q21 followed by e-commerce (5.26%, up from 3% in 2Q21), blockchain / crypto, and AI / ML (4.48%, down from 5.41% in 2Q21). These four sectors combined to account for roughly 35% of all capital deployed on AngelList in 3Q21”.
If you would like to learn more about blockchain, DeFi and the FinTech sectors, check out the podcast below. Tim Ferriss, Chris Dixon and Naval Ravikant do a great job outlining the potential of these technologies to transform the internet.
PODCAST:
Tim Ferriss Show # 542 - Chris Dixon and Naval Ravikant discuss the Wonders of Web 3.0, How to Pick the Right Hill to Climb, Finding the Right Amount of Crypto Regulation, Friends with Benefits, and the Untapped Potential of NFTs.
If you listen to only one podcast this week, this should be the one.
CONFERENCES:
Pension Bridge Alternatives 2021: November 1-3, Virtual Conference. I will be participating on a panel covering currency & crypto. This one will be a bit more macro on how to position a portfolio for a weaker dollar and what role crypto currencies can play in an institutional portfolio.
World Investment Forum 2021: November 7-10, at the Montage in Healdsburg, CA. Panel: Do Digital Assets have a Role in Institutional Portfolios? You can probably already guess what my answer is to this question, but I will try to break it down into simple blocks of why it makes sense for institutional investors to have exposure.
These are the last two events that I plan to participate in for 2021.
I hope that you enjoy the letter as much as I enjoyed writing it and please feel free to share the links with friends and associates. If you are interested in startups and are an accredited investor you can join over 750 other backers that follow my AngelList syndicate here.
Stay safe and stay well. Sean Bill / MacroCrunch / Twitter