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What the last 2 months of fundraising tells us about the future

There is just as much capital ready to deploy, and just as much investor interest, as there was earlier this year, but founders are still adjusting to new market conditions.
Russ Heddleston Contributor Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe and Trulia. Follow him here: @rheddleston and @docsendMore posts by this contributor

For many startups looking to secure funds, the fundraising marketplace has been a bit of a roller coaster. While there are signs that should make founders feel very optimistic (more on that here), it’s important to know how we got to this point.

We’ve used data from the 2020 DocSend Startup Index to track three major metrics to show us real-time trends in the fundraising marketplace. Using aggregate and anonymous data pulled from thousands of pitch deck interactions across the DocSend platform, we’re able to track the supply and demand in the marketplace, as well as the quality of pitch deck interactions.

The main two metrics we’ll be looking at are Pitch Deck Interest and Founder Links Created. Pitch Deck Interest is measured by the average number of pitch deck interactions for each founder happening on our platform per week, and is a great proxy for demand. Founder Links Created is how many unique links a founder is creating to their deck each week; because each person you send a document to in DocSend gets a unique link, we can use this as a proxy for demand by looking at how many investors a founder is sending their deck to.

When looking at what’s happened so far this year, we can potentially see where the marketplace is headed.

January and February were off to a roaring start

We all know 2018 was a great year for startup fundraising. And that can be seen in how many pitch decks were being consumed per founder across our platform. In fact, Q1 of 2018 posted nine of the highest weekly totals in all of 2018 and 2019. Investors’ demand was high and there was a lot of capital to deploy. But while 2020 didn’t come out of the gate as strong, demand started gaining momentum by February. In fact, the week of February 10th actually surpassed the demand in the same week of 2018 and was a whopping 19% ahead of 2019.

But the fundraising market isn’t a one-way street, there needs to be a steady supply of pitch decks being sent by founders to meet investor demand. During Q1 of 2018, founders were conservative in sending out their pitch decks (it might not be a coincidence that this is when we started to see a lot of “mega rounds,” as there was far less supply than there was demand). However, founders started courting far more investors in 2019, generating more interest and competition for their companies. We saw a huge jump in links created in the first two months of 2020 and it peaked at a 41% increase year-over-year during the week of January 27. According to the data, 2020 was on pace to match the fundraising activity of 2018.

When things ground to a halt

While it’s clear the trend was moving toward another blockbuster year for fundraising, we’ll never know what was going to happen. We saw the first drop in investor interest in the week of February 24th, just as people were becoming more aware of the very real threat of COVID-19. In fact, founder activity actually started to decline the week of February 17th. While the first two weeks of March saw the beginnings of the market shift (the first two weeks of March dropped nearly 12% as compared to the first two weeks of February), the week of March 16th is when we saw the major drop.

The week of March 16th saw pitch deck interest down more than 20% and links created down more than 21% from their 2020 height in February. This is also the week many places adopted shelter-in-place or other social-distancing orders. It was also when the economic impact began to affect many companies, with VCs spending more time with their portfolio companies as the COVID-19 crisis intensified. In fact, the top four worst days of 2020 for Pitch Deck Interest (other than in the first week of January) were: March 19th, 6th, 12th and 20th.

What April can tell us about finding a new normal

After the initial decline in March, founders and VCs both bounced back fairly quickly. In fact, the next week VC interest increased 10% while the number of Founder Links Created increased by 12%. However, for the following few weeks the number of links created by founders either stayed flat or dropped. But that isn’t the case for VCs. Demand for pitch decks rose steadily all the way through the week of April 20th, which was 25% up year-over-year. In fact, seven of the top 10 best days for Pitch Deck Interest in 2020 were in the month of April.

There could be many reasons founders aren’t sending their decks out with the fervor they were in January and February. Many are adjusting their business models and plans to account for the new environment, some are concerned they may be asked to change their valuation or ask and still others are working with their current investors rather than seeking more outside capital.

What we do know is that investor interest was on par earlier this year to outpace 2018, and investors only took a brief pause to adjust in March when the pandemic hit. That means there is just as much capital ready to deploy, and just as much investor interest as there was earlier this year. However, founders are still adjusting to the new market conditions. This means the fundraising marketplace is starting to look very much like it did in early 2018, with investor interest high, but founders supply not quite meeting the demand. This is good news for founders, as some of their fears of less favorable terms may not actually be a reality.

The next phase for founders

There are many reasons to be optimistic about what the next few months will bring for founders (more on that here). We update our Pitch Deck Interest metrics every week on Mondays, so you can get a real-time view of what’s happening in the fundraising marketplace. And while investor interest can seem theoretical, we’ve put together an Active VC List to show which investors are taking meetings and writing term sheets. While the companies receiving funding now might be different than they were just a few months ago, it still looks like a blockbuster year in terms of investors looking to make deals.

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