Today's Forbes.com article "Crowdfunding Won't Solve The Venture Capital Series A Crunch" provides an interesting look at the growing gap between angel/seed financings and Series A financings. According to the article (citing Pitchbook), the ratio of seed financings to Series A financings in 2008 was 1.9:1, but had grown to 3.3:1 in 2012. Reasons cited for the gap include:
I would add to this list another bullet point: valuations. Many VCs I speak with say that angel/seed rounds have valuation inflation, which makes it much harder for an institutional VC to do a deal at the Series A stage. If the valuation is too high, then (1) the company (and its angel and seed investors) have to take a haircut on valuation (and suffer dilution as a result), (2) the VC has to pay a higher valuation, or (3) the deal doesn't get done.
The article goes on to discuss whether equity crowdfunding can fill the Series A gap, and argues that no, equity crowdfunding will not do this.
It's an interesting article and worth a read. Here's the link:
http://www.forbes.com/sites/ryancaldbeck/2013/01/23/crowdfunding-wont-solve-the-venture-capital-series-a-crunch/
- Larger VC funds make Series A financings harder to do.
- The growth in angels and incubators.
- Poor investment decisions made by angels and seed investors.
I would add to this list another bullet point: valuations. Many VCs I speak with say that angel/seed rounds have valuation inflation, which makes it much harder for an institutional VC to do a deal at the Series A stage. If the valuation is too high, then (1) the company (and its angel and seed investors) have to take a haircut on valuation (and suffer dilution as a result), (2) the VC has to pay a higher valuation, or (3) the deal doesn't get done.
The article goes on to discuss whether equity crowdfunding can fill the Series A gap, and argues that no, equity crowdfunding will not do this.
It's an interesting article and worth a read. Here's the link:
http://www.forbes.com/sites/ryancaldbeck/2013/01/23/crowdfunding-wont-solve-the-venture-capital-series-a-crunch/
