For VCs, the game at the moment is musical chairs – TechCrunch

In many ways, there has never been a better time to be a venture capitalist. Almost everyone in the industry is accumulating money, either through long-awaited exits or because a greater flood of capital in the industry has meant more money in management fees and sometimes both.

Still, a growing number of early-stage investors are becoming cautious about the pace of trading. It’s not just that it’s much harder to write checks in what feels like a reasonable clip right now, or that most VCs feel like they can no longer afford to be price sensitive. Many of the founders they work with are given follow-up checks before figuring out how best to roll out their latest round of funding.

Consider that from 2016 to 2019, an average of 35 offers per month included rounds of $ 100 million or more, according to data company CB Insights. This year, we are seeing almost four times that number every month. The foam is barely contained for companies in the maturing process. According to data from CB Insights, the median valuation of Series A in the US reached $ 42 million in the second quarter, driven in part by cross-investors such as Tiger Global, which closed 1.26 deals. per business day in Q2. (Andreessen Horowitz was not far behind.)

It does so for some puzzling times, even for investor Jeff Clavier, the founder of venture company Uncork Capital in its early stages. Like many of his peers, Clavier is benefiting from the booming market. Among the companies in Uncork’s portfolio, for example, is Dark Release, a company that helps software developers avoid mistakes. The seven-year-old company announced $ 200 million in Series D funding last month at a $ 3 billion valuation. That’s triple the rating it was assigned at the beginning of last year.

“It’s an amazing company, so I’m very excited for them,” says Clavier.

At the same time, he adds, “You have to put this money to work in a very smart way.”

That’s not so easy in this market, where founders are awash in interest and, in some cases, are talking about term sheets after the first approach with an investor. (“The most absurd thing we’ve heard is funds making decisions after a 30-minute call with the founder,” says TX Zhou, co-founder of Fika Ventures, a Los Angeles-based early stage company, which in turn it only tripled the amount of assets it is managing.)

More money can mean a much longer lifeline for a business. But as many investors have learned the hard way, you can also serve as a distraction, as well as hiding the fundamental problems of a company until it is too late to address them.

Buying more money also often goes hand in hand with a bigger valuation, and high valuations come with their own positives and negatives. On the bright side, of course, large numbers can attract more attention to a company from the press, customers, and potential new hires. At the same time, “the more money you raise, the higher the valuation, it reaches you in the next round, because you have to erase that watermark,” says Renata Quintini of the venture firm Renegade Partners, which focuses mainly on companies of Stage B of the Series.

Again, in today’s market, it is not always possible to try to slow down. Quintini says that some founders his company has spoken with have said: “’I’m not going to go higher because I can’t go faster; I can’t deploy more than my model is already supporting. ‘ For others, he continues, “You have to look at what’s going on around you and sometimes if your competitors are coming up and they’re going to have a bigger war chest. . other [they’re] pushing the market forward. . . And maybe they can hire you more than you or they can spend more than you in certain areas where they can generate more traction than you. . . “The next verification, often with a higher valuation, begins to seem like the only option.

Many venture capitalists have argued that today’s valuations make sense because companies are creating new markets, growing faster than before, and have more opportunities to expand globally, and certainly, in some cases, that’s true. In fact, companies that were previously believed to be their private investors had high prices, such as Airbnb and Doordash, have seen their valuations skyrocket as publicly traded companies.

However, it is also true that for many more companies, “valuation is completely disconnected from [companies’] multiple, ”says Clavier, echoing what other VCs privately acknowledge.

That might seem like the kind of problem investors love to tackle. But as has been the case for years now, that depends on how long this go-go market lasts.

Clavier says that one of his own companies that “made a great Series A and made a great Series B before its time is now being replaced by a Series C, and the valuation is completely disconnected from its real reality.”

He said he is happy for the team “because I have no doubt that they will catch up. But this is the point: they will have to catch up.”

For more information from our conversation with Clavier, by the way, you can listen here.

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