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Is the most active VC based on the number of investments? The size of each investment? Or the number of successful exits? What about the importance of the sector?
If you are a startup trying to raise funds, you’re looking for a venture capital firm that is active in your round range (pre-seed, seed, series A etc.).
If a fund is making too many investments compared with its team, it could mean they are on a machine gun approach. These funds are putting their hands in lots of baskets but never being the lead investor. They can be very useful to get the ball rolling however they will often not make follow-up investments, and with so many on-going bets they won’t be able to bring a lot of support in terms of man hours.
|Ranking||Name||Number of investments||Location||Website|
|1||Accel||30 investments||www.accel.com||London, UK|
|2||Bessemer Venture Partners||25 investments||www.bvp.com||Redwood City, USA|
|3||General Catalyst||25 investments||www.generalcatalyst.com||San Francisco, USA|
|4||Insight Partners||20 investments||www.insightpartners.com||New York City, USA|
|5||Tiger Global||19 investments||www.tigerglobal.com||New York City, USA|
|6||GV (Google Ventures||18 investments||www.gv.com||Mountain View, USA|
|7||EQT Ventures||17 investments||www.eqtventures.com||Stockholm, Sweden|
|8||Andreessen Horowitz||16 investments||www.a16z.com||Silicon Valley, USA|
|9||Seedcamp||16 investments||www.seedcamp.com||London, UK|
|10||Sequoia Capital||15 investments||www.sequoiacap.com||Menlo Park, USA|
It’s not always easy to find out how big of an investment venture capital firms are making on each deal. What we do know is the round size. Generally, the bigger the round the larger the average entry ticket is.
This is where private equity firms come to compete with the usual venture capital companies. Their funds are so large that there is no point for them to invest in small deals. Each investment has to move the needle. Recently, we’re also seeing SPAC companies in the mix. SPACs are special purpose acquisition companies that float on the stock market with a goal of buying and investing in businesses.
Now “sector” is also difficult to define. For example, if you’re in the biotech sector it’s great to take investment from a specialized firm. There can be some great synergies.
But that does not mean that you should run to these types of investors if their portfolio already has businesses competing in your market. This can also lead to complicated discussions, how much information do you really want to give?
On the other hand, if you’re a SAAS business and a VC already has marketing type investments (which would not be considered your secteur), maybe you could help each other out.
Venture capital is a form of private equity. The difference comes mainly from the type of businesses that venture capital firms invest in. Venture capital is funding provided to businesses with the potential for high growth.
Although VCs are often viewed as early-stage, investments can be deployed at different moments of a company’s journey:
There are stories of millions being exchanged based on “back of a napkin calculations” or cheques literally being thrown at startups after Y combinator demo days. And this does happen, especially if you are well connected. But most of the time, venture capital reality is a much more structured process.
The VC investment process has 6 main steps:
Venture capital firms gain access to business projects via accelerators, incubators, universities, angel networks, personal intros and founders that get in contact directly.
It’s important to get on the VCs radar by as many of these entry points as possible. And this venture capital database is a great starting point.
If your business fits within the venture capital firm’s selection criterias, you will be asked to an initial meeting. At this stage, and without a strong introduction, your answers are simply going to be checking off boxes for the VC. Market, revenu, product stage, founders, deal size etc.
There may be a 2 step deal screening, where you will be mostly answering the same questions again but to a higher ranked individual from the company.
After a few back and forths, your lead contact during the deal screening will present your business at the partners review meeting. This is now out of your hands.
This step varies between venture capital firms, but generally, the larger the amounts the more intense the due diligence. This is about assessing the risk of the investment.
If you already have a lead investor on board, they may be responsible for the due dil and other VCs may just tag along. Especially for early stage deals.
Depending on the size of the fund, this can be a 1 to 1 meeting or a full on round table with all partners present. If you are here, you have passed all of the nitty gritty tests. This stage is generally a mix of due diligence feedback and high level questions with partners and general partners.
Once the decision has been made, your lead contact will send you the offer. This can be as simple as a yes to all previously detailed terms or an offer that can be negotiated. It can also be a partial deal depending on XY&Z happening (for example, another fund must say yes).
The venture capital process is a long journey with drop offs at every stage. The good news is that the process is quite similar from one fund to the next, so it does get easier. Your answers and documents will be ready and stress levels will drop dramatically with each new meeting. Fundraising is definitely a skill. If you multiply the reps, you will get better.
The key here is to start talking to venture capital investors as early as possible and build trusted long term relationships that will help your business grow.
We have put quotes around the word ‘firms” as recently the line between angel investors and venture capital is blurred. Below is a brief description of each venture capital category.
A venture capital firm groups together the investment of several investors into a fund. Each investor then becomes a limited partner. Investors can be individuals, businesses and corporations but also other funds.
Most venture capital funds have a lifetime of 5-10 years. That is the time that is allotted to invest all the capital and return profits to the investors.
One single venture capital firm can raise several funds in different sectors, time horizons and deal sizes.
CVC (corporate venture capital) are funds set up by large organisations such as Google Ventures or Salesforce ventures. This category is growing fast as tech businesses are gaining resources and progressively becoming the largest businesses in the world.
Family offices are privately held companies that manage the investments of a wealthy family. Traditionally risk averse and closely linked to private equity, these entities have been joining forces with aggressive venture capital firms to invest in fast growing tech companies.
Angel investors are individuals who invest their own money into early stage startups. Angels often join forces with other Angels and invest as a syndicat. This category is becoming more and more educated and the average ticket size is growing fast.
When you’re looking for a venture investor it can sometimes feel like it’s just about the money and that ‘any investor will do’. However not all angel investors are equal. If the individual doesn’t share your vision for the company and is too rigid with your business plan, it can result in extra pressure for you and your team.
This investment is only the first step of your funding journey. Each step should help you get to the next round. And an industry insight or a key contact can sometimes help you alot more than a simple cash injection.
Make sure you are aligned with your Angels.
Large angel investors can have their own researchers and admin staff. The structure will be run like a family office but with the targeting and aggressiveness of an early stage venture capital fund.
Some angel investors get together in business angel syndicates. Here, the syndicate will generally see more deals than an individual angel and the angel can decide whether or not they would like to invest.
Accelerators and incubators are generally backed by large corporate organisations that are trying to dip their toe into innovation by helping young businesses grow within their framework. They will invest in startups with funds but also mentorship and partnerships.
At startupmag, we track pure venture capital firms as a priority, however as a free bonus, we also list active players in other sectors.
This category offers a good structure to help early stage startups grow in the best possible environment. Accelerators and incubators can invest money but they can also invest time with advisors, demo days and networking. It’s also a great place to meet other founders trying to do the same as you.
Several accelerators are sponsored by large organisations (Barclays, Telefonica, John Lewis). These corporates are trying to reinforce a culture of innovation within their teams and it can be great to test your B2B products or to set up important partnerships. Direct acquisitions or acquihires have also been seen even before demo day.
There have been some great success stories in this category. The most famous accelerator is Y Combinator in the US which has helped launch Airbnb, Doordash, Stripe, Dropbox.
As seed rounds become bigger and require more proof of traction and product-market fit, a gap has been left for very early stage investors. This is for entrepreneurs who have an idea in an exciting market and are exploring things.
A pre-seed VC will invest in ranges between 100K-500K. At this level of investment, it’s generally all about founders, market size and experiments. A Pre-seed fund will make you a part of an ecosystem from the start with investors and startups ready for your next steps. Although they are not generally as hands on as an accelerator or incubator, they can provide quality intros and have standard templates for term sheets.
If you add a Pre-seed VC to love money and business angel investments and you could have the perfect combo.
Seed venture capital was named “seed” because it was supposed to be the beginning of your startup funding adventure. However today seed rounds are often closer to £1M-£3M and we are seeing more and more startups grouping their previous investments together to show a larger seed round and hopefully get more PR.
Seed rounds structures can vary but generally we see one lead venture fund that will be in charge of negotiating the term sheet and a series of secondary investors that are happy to come on board for the ride. That lead investor is key.
Venture capital in the UK is currently being turbo charged by 3 different initiatives managed by British Patient Capital (BPC).
British Patient Capital (BPC) is the commercial subsidiary of the British Business Bank.
BPC is in charge of delivering the Future Fund Breakthrough. A £375M UK-wide scheme to encourage private investors to co-invest with the government in high-growth and innovative firms.
British Patient Capital, who also usually invests only in other venture capital funds, is now also investing in UK startups as an independent initiative. Three investments have been made so far. £7M into medical tech form Accurx, £5M into data analytics firm Quantexa, and £5M into banking software provider Thought Machine.
Finally BPC will oversee another potentially larger life sciences initiative by investing £200m into as many as 4 funds, with the Abu Dhabi based wealth fund Mubadala. Together they are promising to invest up to £800m alongside the fund.
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