Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe and Trulia. Follow him here: @rheddleston and @docsend
It’s safe to say that no one could have predicted how this year’s fundraising marketplace was going to shape up. The beginning of the year saw us trending toward a blockbuster start, similar to 2018, rather than the steady burn of 2019. But after March there was no clear road map for how VCs and founders were going to react.
We’ve been tracking three key data metrics from the 2020 DocSend Startup Index to show us real-time trends in the fundraising marketplace. Using aggregate and anonymous data pulled from thousands of pitch deck interactions across the DocSend platform, we’re able to track the supply and demand in the marketplace, as well as the quality of pitch deck interactions.
The main two metrics are Pitch Deck Interest and Founder Links Created. These are leading indicators for how the fundraising marketplace is shaping up as it measures the activity happening around the pitch deck. As that interest peaks, we expect the amount of funds deployed to increase in the months after. Pitch Deck Interest is measured by the average number of pitch deck interactions for each founder happening on our platform per week, and is a great proxy for demand.
Founder Links Created is how many unique links a founder is creating to their deck each week; because each person you send a document to in DocSend gets a unique link, we can use this as a proxy for supply by looking at how many investors a founder is sharing their deck with per week.
Here’s what we saw in Q2 and how that will affect the rest of the year.
VCs are shopping
VC interest has been at an all-time high over the last quarter. Interest rebounded over the course of a few weeks after the pandemic was declared and shelter-in-place orders were given. But once interest rebounded to pre-pandemic levels it did something surprising. It kept climbing. In fact, the top 10 weeks for VC interest this year were all in Q2. Overall, interest was up 21.6% QoQ and 26% YoY. This means we’re looking at VCs viewing more pitch decks than they have any time in the last two years.
This is in spite of VC interest traditionally declining from late spring into summer, before bottoming out during the last two weeks of August. After the initial peak in the spring, VC interest typically doesn’t rebound until October.
But not only can we see that VCs are interacting with a lot of decks, we also can determine the quality of those interactions. We measure how long a VC spends reading each deck. From our previous research we know that the average pitch deck interaction is less than 3.5 minutes. But the amount of time VCs spent reading each deck in Q2 steadily declined, going below two minutes toward the end of the quarter. This tells us VCs are speeding through decks. That means they either know what they’re looking for and aren’t wasting time, or they’re scrutinizing decks less, opting for a Zoom call to hear more from a founder.
For founders, this means having a tight deck is even more important than before. Don’t have more than 20 slides, don’t send your appendix in your send-ahead deck and keep your slides concise and thoughtful (read our guide on how to put together a send-ahead deck here).
If you’re still not able to get a meeting with a VC during this intense shopping season, you may want to consider changing your fundraising strategy.
Founder timelines have changed
We can see over the last quarter that there have been clear spikes in the amount of links founders are sending out. Founders sent out 11% more deck links in Q2 than they did in Q1, but what’s interesting is that the number of links created actually dropped below 2019 levels on three separate occasions. So while founders might have been rushing to send their deck out during unstable times, there were plenty of weeks where founders were hanging back.
This conflicting story can tell us several things. First, founders have most likely condensed their fundraising efforts. According to our research earlier this year, the average pre-seed round takes longer than three months to complete. For those fundraising during a pandemic, three months can seem like a lifetime. This is not only due to the logistics of setting meetings with VCs who have packed calendars, but also the iteration process of receiving feedback from a potential investor, working on your deck, then sending it out to new targets. With global uncertainty, many founders likely decided to shorten their time away from their business by reducing their fundraising efforts to just a few weeks.
Second, due to aggressive cost cutting at the beginning of the pandemic, many founders found themselves with more runway than they expected. In fact, according to a recent survey we did, nearly 50% of founders changed their fundraising timeline by either moving it forward or delaying it. Founders that could afford to decided to avoid the volatile fundraising marketplace in an effort to preserve their valuations.
We’re looking at more than displaced interest from March
While it was easy during April and early May to think the fundraising marketplace was experiencing delayed activity due to the crash in March, the sustained interest makes it hard to believe that’s still the case, especially taking into account seasonality. The last week of the quarter saw a 37% increase in interest over 2019 and an 18% increase over 2018. With that level of activity, we’ve clearly entered a new normal for fundraising.
While valuations might be fluctuating, it’s quite clear VCs are shopping. To figure out why, you don’t have to look any further than the 2008 financial crisis. The businesses born out of crises tend to address real, systemic problems that require big, bold fixes. And the pandemic has certainly laid bare many societal issues that are worth addressing.
What Q3 and Q4 could look like based on current trends
If it’s clear that VCs are shopping, and it’s clear that this isn’t displaced interest from earlier this year, what does that mean for the future? We would normally see an increase in founder activity starting in late summer, leading to peak VC interest in the fall. Founder activity has been up and down, and VC interest has been steadily rising, which tells us there’s still pent-up demand to deploy capital. We should also see many founders who delayed their fundraising efforts enter the marketplace in the next few months. If pandemic conditions worsen, we might also see founders who had decided to push their fundraising efforts to next year moving their timelines forward.
If the current level of interest represents the new normal for VCs, we expect it to only increase as we enter the fall. And with more founders coming online in early to late fall, that pent-up demand should result in an increasingly active market. If you’re a founder, I would recommend kicking off your fundraise now in order to capitalize on the increased interest from investors and decreased competition for at least the first pitch meeting.
Closing a round of fundraising is generally a huge milestone for many startups. But it can also be incredible hard, complicated work and a stressful affair. Add to that a global pandemic shutting the world down? Doubly so, you would think. We checked in with Roamler, Studytube, Wizenoze and Open Social; all startups from Amsterdam that managed to raise significant funding during lockdown and peak pandemic. How did they manage, how do they look back and what is their advice?
Roamler got themselves worked up
On-demand marketplace for workers Roamler managed to raise a whopping €20 million. Their previous investor Endeit from Amsterdam led the round. Roamler-CEO Jeroen ten Haave started informal conversations with investors in November last year, when the world hadn’t heard of the word ‘COVID-19’ yet. That quickly changed and raising funds while a pandemic was disrupting the world was more excitement Ten Haave bargained for. “I think it was mostly us that were nervous about the situation. The investor clearly said they believed in what we were doing.”
Roamler did not betray that faith. The Amsterdam-based startup got hit hard by the lockdown measures taken all over Europe. A lot of Roamler’s activities take place in stores or at people’s homes.”Together with our clients we determined it was simply not okay to send people there.” After business plunged in the lockdown months of April and May, it instantly picked up once life turned back to normal, says Ten Haave. “In June we were back on the level of February. We went from virtually standing still to business as usual in just two months. I think this proves the strength of our business model.”
With the fresh funding, Ten Haave is looking abroad for Roamler. Highest on the list of priorities is international expansion of Roamler Tech, which employs specialists to install devices, troubleshoot software or help users with new technology. “We’re starting our expansion in the UK. We wanted to roll out in June, but due to the pandemic it got delayed until the end of September. After that, we’re looking at Germany and France, somewhere next year.”
According to Ten Haave, the biggest challenge when setting up in a new market is to onboard new clients and convince them from the new way of working they offer, compared to the traditional model of freelancing or employment. “Our clients are large companies. They won’t change their organisation overnight. But there is huge demand for digitization of processes and workflows. Now that there is uncertainty in the market, this could mean there’s opportunities for us. It strengthens the discussion on how we can help people in a more flexible way.”
Studytube’s deal nearly fell through
“These were the most stressful days of my life”, says Studytube co-founder and CEO Homam Karimi when he recalls the past couple of months. His online learning platform closed a funding round of €10 million with Nordic fund Verdane. Certainly something to celebrate now, but back in March, with the deal 99 percent done, COVID-19 nearly ruined everything. After months of work, all the way through the due diligence phase and beyond the shareholders agreement, everything just needed one official nod from all parties to close. But the same Monday The Netherlands went into a lockdown, Karimi, with the champagne bottle ready to pop, got word the investors pulled out.
“At first there were some additional questions from Verdane about the deal. They started to have doubts about investing in new companies because of the uncertain times. But on Monday afternoon we heard the deal didn’t go through.” This meant the agreed upon exit for previous investor Henq also fell through. “Henq was also hit by this. Together with Coen van Duiven [Co-founder of Henq] we worked really hard to make the case for us. Eventually Verdane realized that Studytube was one of the companies that would come out of this crisis better than before. Tuesday after the lockdown went into effect, the deal was signed and done.”
The fact that Studytube is likely to grow during the crisis is already apparent. Karimi identifies two parts of the business: the SaaS-part, which offers an online learning platform for organizations, and a marketplace where one can book educators and training. “The software part really took off”, says Karimi. “Many companies had nothing in place for their employees to train or learn from home. Since March, we have added fifty new organizations.” However the part of the site where training or workshops are offered, fell quiet. Karimi: “The SaaS-part grows way faster than the decline of demand in the marketplace. We’re still looking at 70 or 80 percent growth this year.”
With the funding done, Karimi is looking across the border for Studytube. “From 2021 we plan to expand across Europe.” One way to do so is organic, by starting to offer their product on new markets. But Karimi is also looking at acquisition of other parties to accelerate their growth. “There are many legacy learning management systems in Europe that were founded ten or fifteen years ago and make a nice profit now without ever receiving any funding. But those founders will probably ask themselves if they can keep competing on their own. I don’t believe Europe will have hundreds of different companies offering the same, when it comes to online learning. There will be two or three big parties, and we want to be part of that.”
Wizenoze had VCs lining up
Another Amsterdam startup reaping the rewards from a sudden shift to homeschooling is Wizenoze. This edtech startup sifts through online content to only offer students educational gold. According to Wizenoze, COVID-19 got 1,5 billion students stuck at home, all dependent on online information to support their online learning. This meant usage of Wizenoze surged, says co-founder Diane Janknegt: “Due to Corona, we have seen a growth of up to 300 percent in usage with some of our customers.” With growth and a potential market like that, no wonder the startup managed to close a growth-stage funding round of reportedly €4 million.
Soon after schools all over the world started to close down, investors also started to see the huge potential of Wizenoze, says Janknegt. “Like most entrepreneurs, we started the lockdown by looking at our cash flow and run rate. With these details in mind, we decided to accelerate the fundraising. In the beginning, it was a bit tough, but a couple of weeks after starting, it turned around. Suddenly, many more investors did understand the potential value of offering educational content through the internet. In the end, our round was hugely oversubscribed.”
This luxurious position meant Janknegt had something to choose. She says she was able to double their initial ask, pick the best profile of investors and the friendliest terms. Janknegt: “In the end, we created what I call a ‘dream team’ of investors.” With this team and the funding, Janknegt is ready to expand Wizenoze worldwide. “We will focus our international growth on India and the Middle East. Our strategic headquarters are in London, which will remain our key market. And of course, we can also expand in the Benelux. We also experienced a lot of interest from overseas. Several conversations are still ongoing.”
Open Social’s early networking paid off
Fundraising during a global pandemic doesn’t have to be a stressful affair. Take Open Social, the startup from Amsterdam that offers everything for companies and organizations to create and maintain online communities. After previous round of crowdfunding, their first round of funding with VCs, €1,25 million, took a bit longer than expected to realize. But founder Taco Potze was never worried. “My advice for other startups is to make early contact with VCs in The Netherlands. They are generally willing to hear your story and have a cup of coffee, especially if you already have a product and clients. This allows you to build your network, and prevents you from fundraising with only a couple of months runway left.”
That is exactly what Potze did. He started his first meetings in the summer of last year. “We heard that closing a round could take up to 9 months. So we started early, in keeping with the knowledge of ‘don’t ask for money, ask for advice’. This is a nice way to get in contact with VCs and a good way to know which can offer smart money.” After the first meeting at Peak Capital, which ended up as their main investor, Potze participated in a session about growing sales held by the VC. “This made it easier to eventually close the round.”
After some progress in talking with the investors came COVID-19, shutting the world down. Potze: “This was a huge shock. VCs wanted to know how corona proof your concept is.” Very, would’ve been Potze’s answer. According to the startup COVID-19 had no negative effect and when it comes to growth they are having their best year since starting in 2016. Potze: “Many companies moved their budgets to online and remote working, which works in our advantage. We didn’t lose any customers and added quite some projects.” Potze had some questions for VCs as well. “We really wanted to know how companies in their portfolio were doing and what would be the consequences for their funds.” All in all the funding got delayed for a couple of months, says Potze.
The significant funding allows Open Social to do some serious hiring, especially in the department of sales and marketing, says Potze: “We always bootstrapped, so now we can invest in those areas. This will allow us a stronger foothold in Europe and the US. We also want to expand our support, to process tickets faster.” Potze is looking to double the team of 20 people currently working for the startup. “Now is a good time for vacancies. There are many ambitious people who are laid off, or looking around for something else. Compared to a year ago, we see better candidates.”
I know this is a bit off topic, but given that I'm currently physically located in the SF Bay Area I suspect some advice from this crowd might turn out to be germane to the people I can reach.
I have a project in mind that might be described as a business with $ 5M startup costs that would grow linearly and reach maximum profitability around $ 60k/mo in 2-3 years and then stay at that point indefinitely (plus inflation, of course).
Unfortunately it's a weird enough endeavor that getting financing from a bank is almost certainly not going to happen.
Are there any good books or articles on trying to find private loans or investors for a project like this? Most of the resources I can find, and obviously most of the discussion in this sub, seem to be around riskier projects with much higher potential payoffs.
Being an entrepreneur for nearly a decade, having raised some money for 4 different startups, I came across 1000's of educational resources about funding; some of them from war-weary entrepreneurs, some from all-knowing gurus, and some from "friendly" VCs. Many of which were biased and provided little concrete knowledge about the scary beast that is fundraising. I am sure that many of us founders here feel the same way.
I am currently raising a second round for a fast growing startup that I've been working on for the past 2 years. I am thinking about sharing the entire process from start-to-finish in this subreddit (omitting people's names, of course) for the sake of learning together as a community. Thoughts?