VC Has Gotten Bigger But, It Turns Out, Not Much Faster

Update: Several parts of this piece needed to be corrected after Jason discovered an error in how he constructed the data table that populated the line chart detailing the pace of VC investment. He did not catch the error until he was further analyzing the data for a follow-up piece, after initial publication.

Because of the error, it looked like the venture market was moving much, much faster than it actually is. Spoiler warning for the rest of the article: we asked whether the time elapsed between venture rounds is changing. We did this by analyzing sequential pairs of rounds. For example, the elapsed time between the first tranche of Crunchbase’s Series A (announced in September 2015) and its April 2017 Series B is 562 days.

However, continuing with the previous example, instead of correctly saying that the Series B round was struck in 2017, the formula we wrote in Excel erroneously pulled the year of the prior round, Series A, which was one column to the left. The 562 days between Crunchbase’s Series A and Series B would have been incorrectly aggregated into 2015, not 2017.  In turn, the days elapsed between companies’ Series C rounds were assigned to the year of their Series B rounds, and so on. In other words, it was an indexing error resulting from being off by one column.

In the resulting pivot table, we were aggregating by the year of the last round, which isn’t such a big deal for years further in the past, but it became a problem for recent years. It’s no surprise that we originally calculated that the average round announced in 2018 were raised mere months after the last; we were calculating the average time elapsed only for the companies which raised a prior round in 2018 as well.

The article below has been edited and its charts have been corrected. For the sake of posterity, we’ve archived a version of the original article before we made amends to it.

In startups the mandate is simple: move fast. And startups are moving faster today than they were, perhaps ever. But all that growth costs capital.

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Over the past couple of years, the amount of capital going into private tech companies has gone up, and up, and up. Rounds are bigger and there are more of them, but are they happening faster? And what does “faster” mean here anyways?

In this case, we’ve calculated the time between successive rounds of funding. For example, the time elapsed between a Series A round struck in January 2015 and a Series B round announced in January 2017 was 24 months (about 730 days). We found the amount of time between over 17,000 pairs of rounds—ranging from Series A to Series E—in Crunchbase.1

Below, we’ve displayed the average and median time between venture rounds based on aggregated data from the past 18 years.

Over the years, a consistent trend emerges. On balance, companies raise money at a fairly consistent pace. Although a Series B round is larger and thus typically goes a little further than a Series A round, the differences here are small, on the order of a month or two.

As the chart below shows, the average amount of time between rounds remained fairly consistent, averaging about two years between rounds, plus or minus, for the better part of the last decade.

Although the time between deals remains fairly stable (notwithstanding later-stage acceleration in 2015), VCs are investing more capital per round, especially at seed and early-stage.

There are a few possible implications to the acceleration of the venture market:

• There’s a lot more buy-side liquidity, as demonstrated by the spate of big venture fund raises so far in 2018.
• Companies are able to get traction and need to scale earlier on in the lifecycle.
• Companies may be less capital efficient now than they were previously, which would require faster capital infusions than their predecessors.

The venture market as a whole may not be accelerating, but there are exceptions.

There are some crazy-hot sectors (like electric scooters) where slugs of fresh capital are delivered in absurdly rapid succession. For example, in mid-October, German scooter service TIER Mobility announced €2 million in seed funding and, merely eight days later, announced a a €25 million Series A round. U.S.-based scooter competitors like Bird and Lime have each raised $400 million or more across two venture rounds apiece so far this year.

But there are comparatively quieter sectors outside the media limelight where companies have raised multiple rounds this year. We’ve covered a few of them recently.

This week, cloud communication infrastructure builder Agora.io raised $70 million in a Series C round led by Coatue Management. In June, the company raised $30 million to extend its Series B round. Also this week, neighborhood surveillance service Flock Safety raised an additional $10 million in a new round of funding less than three months after raising $9.6 million.

That sort of funding velocity would be nigh unheard of just a few years ago. And, to be fair, these companies are still outside the norm.

I’ve heard it said that a startup is more likely to die of indigestion than starvation. Too much capital leads to excess and enables reckless pursuit of expensive and ultimately fruitless boondoggles. Too much capital can drown a business.

The buckets of money getting dumped onto startups are getting bigger, but turnaround time between buckets isn’t really changing for the average venture-backed company.

Illustration: Li-Anne Dias