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For Danielle London, a principal and investor at venture firm Base10, competition for a deal now starts before a company exists.
“[Companies are] getting funded way earlier and at higher valuations. That means you’re talking to a founder way before the genesis of the business happens,” London said.
It’s already a record year for the earliest stages of fundraising. Investors have funded an estimated 8,625 first-time VC financings in the US through Q3, topping the previous record set in 2021, according to PitchBook data. At the same time, the number of active VCs has been declining for years.
In theory, an explosion of new companies and a narrower pool of firms should mean VCs are spoiled for choice. But in conversations at TechCrunch Disrupt this week, smaller firms described an increasingly competitive environment where they’re struggling to get in the door at all.
“The broader dealmaking environment has gotten almost comically competitive,” said Rob Biederman, founder and managing partner of Asymmetric Capital Partners. Valuations have become unrecognizable at the earliest stages. The median pre-money valuation for a pre-seed deal in the US has tripled to $12 million from $4 million in 2020.
To compete, smaller VCs are going after founders earlier than ever, from courting academics who never planned to start companies to funding ideas that have yet to become businesses. They’re also rethinking check sizes, ownership and deal terms to win over founders.
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