Ready to take your (Prop-tech) start-up to the next level? Are you thinking about raising capital for a growth equity round (Series A-C)? In this newsletter we share some of our experience working with founders on a day-to-day bases + market intelligence from our global investor relationships.
We at the Proptech Connection are seeing several new VCs coming to market, with “fresh” capital (often times Middle East) + many new Corporate VCs entering the space (majority from APAC). Many of those “strategic” investors do not have access to high quality deal flow or will get on cap table during later stage rounds, at significantly higher valuations. We believe there is an incredible opportunity for “smart” money for our clients. This 2nd or 3rd tier capital, is not much relevant, but simply "less known" or not having marketing budgets like other investment funds.
Fact: did you know that only 25% of seed-funded companies go on to Series B?
Fundraising usually takes a lot more than what meets the eye. It’s a time-consuming process and it is not something founders enjoy dedicating time on, they'd prefer to focus on growing their business.
First of all, you only get one shot from an investor. It’s important to do research pre-meeting and come into that investor meeting prepared.
It is misconstrued that VCs have a lot of “dry powder” to invest. If we must believe the average media article, VCs (across all verticals) have up to $300 billion available.
But, in reality, they don’t physically have this money + they don’t need to use it any time soon. When a VC raises a fund, they usually don’t have all the money up front. Instead, they request capital from their investors (LPs) when needed.
Even though LPs don’t pay their VCs a 2% yearly management fee for nothing, they are not in a rush to allocate capital. Waiting a year is nothing in the 10-year (or more) lifespan of a VC investment. A VC won’t lose its job by waiting another year before making an investment call, but it will when your company burns all the money. Therefore, they will always look for the most profitable company. Given the current climate we are seeing many VCs doubling down with follow-ons into their most successful portfolio companies...
What do you need?
It’s a team effort.
Let’s have a look at the roles that need to be filled in order to run a successful (growth equity) round. It all starts with the right strategy, who are you targeting/why/how, what problem are you solving and what’s the narrative? How do you differentiate from your competition? You’ll need a marketing expert to share the message with the right people, a researcher for market insights and a team of strategic advisors with industry relationships.
Once you’re going for your fundraise, you need to have proven you’ve delivered on the opportunities in your previous round and show that you have (ongoing) potential for significant growth. Logically, investors’ expectations have changed by the time you reach this stage. They will expect that additional venture capital will be used to pursue further lines of revenue. It’s all about filling key gaps and adding to an already matured business.
Now keep in your mind, raising a Series B (or higher) is not easy. Especially considering the current state of the market, it might be better to hold of actual fundraising (for the higher rounds) till late 2023 or even 2024. By then the markets hopefully improved and the pressure on VCs to invest will be much higher than it is today. Take this time to prepare, prepare and prepare. And you’ll be able to raise at 10x ARR instead of the 3x ARR.
The landscape of angel investing in the US has also shifted dramatically since the pandemic. Angels are not only moving more and more to the pre-seed space but are also putting much more resources into SAFEs of the expense of convertible notes.
A brief breakdown of the US numbers in the last 3 years:
2020: 8,736 SAFEs issued to pre-seed Carta companies, 5,055 convertible notes issued to the same cohort
2021: 25,589 SAFEs (a massive $3.13 billion invested) and 8,198 convertible notes (a sizable $1.2 billion invested)
And even in 2022, amidst turmoil, the pre-seed SAFEs held relatively strong.
2022: Over 21,000 there were SAFEs issued, which collectively raised $3.4 billion in capital.
Even more reason to take a little step in place before pursuing a round A series or higher, but better times are always coming! Use it in your advantage.
Our team is supporting many Proptechs (Series A-C) with strategic introductions with our global investor network. We can get you in front of investors in Brazil, US, across Europe, Middle East or Australia, Singapore or Japan.
If we understand what you need, we can help you with strategic growth initiatives.
We have deeper insights + high quality deal flow + access to global network of investors actively looking into this space.