Mattermark has just published a report showing that Amid Pre-IPO Mega Deals, Overall Q4 2014 Startup Deal Volume Returns to Late 2011 Levels with Seed Rounds Slowing Dramatically – here’s a couple of graphs from that report (linked from their site) which show it clearly.
I think this lower volume makes sense when you consider the following:
For low-funded startups its
difficult impossible to retain rockstar engineers in Silicon Valley – they all want to work at somewhere like Uber where they think that their stock options are more valuable. Note: this is a silicon Valley specific problem – elsewhere it’s not the case.
As sectors mature, it’s
difficult impossible to launch a startup with a tiny team of 2 or 3 founders – a hacker (programmer), a hustler (deal maker, biz dev) and a hipster (designer). Eg. in order to get visibility on the app store you also need a marketing budget of $50k/month to build traction and in a lot of sectors it’s now extremely difficult to launch an app which is really just a feature solving one pain-point – users are expecting something more fully-featured from day one. For many sectors to build,test and support a minimum viable product and to create enough mindshare amongst users to get growth needs a team of 10 or more.
There’s serious momentum investing (I’ve written about this before) where one startup in each sector gets $ tens of millions and, unless they screw up big time, this cash gives them enough power to crush all competition and dominate their market. Seed investing in this environment is high risk unless you’re sure you’re backing the one which will attract the momentum investors.