Year: 2019

The global cybersecurity market is booming: Cybersecurity-related spending is on track to surpass $133 billion in 2022, and the market has grown more than 30x in 13 years. But it’s not all unicorns and rainbows. Some industry watchers have claimed that the cybersecurity market is a bubble about to burst. To understand the debate, it’s important to look beyond traditional supply and demand metrics.

On the one hand, the demand for cybersecurity solutions is huge. Organizations are increasingly investing in cybersecurity, as evidenced by a recent report by Gartner Group showing security spending is outpacing IT spending. Security departments are expanding in size and budget, and, at the helm, security decision-makers are gaining respect more than ever before. With ever-dynamic cybersecurity risks and regulations, it is clear to most C-suite leaders that there’s more to be protected and more on the line.

Security is taking on a new shape within organizations. Generally, security buyers are investing in various categories in order to protect their organizations. Moreover, security is often integrated into new business initiatives and used as a competitive advantage. Across the different approaches to security, the resounding sentiment is clear — no one wants to be breached. However, this preparation for a cyber doomsday might be disproportionate to how breaches affect the bottom line.

Well-publicized security incidents in recent years resulted in little long-term effect on the bottom line. Equifax has regained its full market cap less than two years following the “incident of the century,” and Sony, a $70 billion-plus giant, incurred “catastrophic” damages of less than $100 million after proprietary, sensitive and even embarrassing data was stolen. It seems that companies deal with their worst-case breach scenarios without enduring severe financial losses that were once believed to devastate companies. So, are security departments just crying wolf? If so, could the demand for solutions decrease?

On the other hand, let’s think about the supply: The landscape of cybersecurity solutions and services is strikingly saturated. Still, this busy frontier continues to attract founders and investors alike, with 300+ new startups launching every year and VCs investing in cybersecurity at a record high of $5.3 billion in 2018. Further, many cybersecurity startups are able to raise large rounds of funding, with exceedingly high valuations, despite having little market traction. But even when funding is pouring in, it is not easy for the cybersecurity business to survive, let alone successfully exit. Dave DeWalt, the former CEO of FireEye, said it well: “We are in this situation where there are just too many vendors and too few can be sustained.”

With overvaluation of startups, market saturation and the seemingly less-than-catastrophic impact of breaches, it’s no wonder why some are worried about the cybersecurity industry. I, for one, don’t think the bubble will pop anytime soon.

Unique factors make cybersecurity a formidable market. To highlight a few: Government and defense investing serve as anchors that continually fuel growth. For example, the U.S. 2019 President’s Budget includes $15 billion for cybersecurity-related activities, and France has committed to 4,000 cyber headcount by 2025. This type of demand is not going anywhere anytime soon.

Besides, increased compliance and regulatory requirements such as the EU’s General Data Protection Regulation (GDPR) calls for action from companies and propels awareness and sales even further. On top of that, the industry is dynamic and keeps reinventing itself. New categories emerge in spaces like Zero Trust and IoT security to address threats that are growing in scope and sophistication. The future-forward mindset in the industry is so strong that sci-fi writers are employed to predict cyber threat scenarios as well as inject innovation into cyber defense.

While these factors contribute to the strength of the industry, they are not the primary elements that will prevent the cybersecurity bubble from bursting. The answer does not lie in where cybersecurity is today, but where it is going next. In the foreseeable future, cybersecurity will face unique threats that will fuel its growth even further:

• Customer impact: High magnitude attacks geared toward B2C companies could lead to massive customer churn and bottom-line damage. Once consumers feel the effects, they will fear working with companies they don’t trust. The awareness level of consumers to cybersecurity and privacy is already raising the bar for companies to beef up their security efforts. As a result of higher customer expectations and intensified regulation, many companies will further invest in security and the market will keep expanding, respectively.
• Economic impact: In its Global Risk Report 2018, the World Economic Forum (WEF) listed cyber threat as one of the most critical risks threatening the world economy. In the near-term, companies will likely incur paralyzing attacks that will shut down daily operations, causing unprecedented loss of revenue eclipsing the breaches we’ve witnessed thus far. These crippling cyberattacks will lead to direct growth in cybersecurity spend.
• Civil-life impact: Attacks on developed countries could interrupt electricity, water supply and more, causing massive civil-life disorder. In addition, the rise of IoT and autonomous machinery in our day-to-day will not only expand the attack surface, but also threaten lives. The safety of people will pressure political bodies into creating regulatory requirements to bolster security for embedded technologies and scrutinizing how smart devices are secured.

It is true that the security market is highly fragmented, some companies are overvalued and not every new security tool will be a big success. But as our world becomes more software-driven, cybercrime will inevitably intensify, leading to new matter entering the security bubble. This will propel security into a significantly larger market at an even greater rate, visible by investors, leadership teams and company boards. Instead of bursting, the cybersecurity market will only keep developing and growing.

A lot of talk has been made about verifying valuable items on an immutable blockchain, but the main pioneer in this space has been Verisart, which appeared a few years ago to use a blockchain to create certification for the fine art and collectibles market. But despite the blockchain hype of the last few years, Verisart eschewed the fund-raising bonanza, preferring instead to perfect its model and build partnerships.

That changes today with the news that it has raised $2.5 million in seed financing in a round led by Galaxy Digital EOS VC Fund. Further investment has come from existing investors Sinai Ventures and Rhodium. The funding will be used to expand Verisart’s commercial platform for authentication and further expand in the art world.

Co-Founder and CEO Robert Norton commented: “With this new round of funding, we’re able to scale our business and ramp up our partnership integrations. The art world is quickly realizing that blockchain provides a new standard in provenance and record-keeping and we’re looking forward to extending these services to the industry.”

The $325mm Galaxy EOS VC Fund is a partnership between Galaxy Digital, a blockchain-focused merchant bank, and Block.one, the publisher of EOSIO, the blockchain protocol.

The funding will go towards extending the product and engineering team and launching a suite of premium services aimed at artists, galleries and collectors. The company recently appointed Paul Duncan, formerly the founding CTO of Borro, the online lending platform for luxury assets, to lead the engineering team.

In 2015, Verisart was the first company to apply blockchain technology to the physical art and collectibles market. It’s also working with some of the world’s best-known artists including Ai Wei Wei and Shepard Fairey to certify their works of art. In 2018, Verisart won the ‘Hottest Blockchain DApp’ award at The Europas, the European tech startup awards.

It’s also been the first blockchain certification provider on Shopify to offer digital certification for limited editions, artworks and collectibles.

Other players are now entering this growing blockchain-for-art market. Codex Protocol is a new startup also putting art on the blockchain.

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1. Publisher adtech startups Taboola and Outbrain merge in $850M deal to take on Google and Facebook

The content recommendation rivals — who are, shall we say, not exactly known for the high quality of their recommendations — are merging to form a single company.

While the companies describe the deal as a merger, the combined entity will be called Taboola, with Taboola’s founder Adam Singolda securing the CEO slot. Further, Taboola is paying Outbrain investors $250 million in cash plus a 30% share of the combined companies.

2. Here’s everything Microsoft announced at today’s Surface event

Most of the rumors panned out: There was a new version of the Surface Laptop, including the addition of a USB C port and a 15-inch model. The Surface Pro got a USB C port as well, along with improved studio microphones. And there’s the new Surface Pro X, which finds the company utilizing Microsoft’s new SQ1 chip.

3. Introducing the Startup Battlefield companies at TechCrunch Disrupt SF 2019

This year’s batch covers rapid cholera detection, developer tools, strawberry-picking robots, regulatory monitoring and more.

4. Uber launches a shift-work finder app, Uber Works, starting in Chicago

This is a new app for matching = workers with shifts, called Uber Works. The app does this matching in partnership with staffing agencies, and it offers workers the carrot of more timely payments.

5. Will Smith just dropped $10K on a startup that pitched him onstage at Disrupt

It’s true: I interviewed Will Smith and Ang Lee about their new movie “Gemini Man,” and it turned into a mini-startup pitch competition.

6. In a new filing, the venture firm Mithril Capital says it has been under assault by its former general counsel

The firm has been characterized in news reports by Recode as being in a complete state of disarray — and, more recently, for reportedly being investigated by the FBI for financial misconduct. Mithril is now drawing a line from those stories to former employee Crystal McKellar.

7. How Bongo, the ‘Netflix of Bangladesh,’ won the local video streaming market with just $10M

The on-demand video service began life as a channel on YouTube in 2014 before expanding as a standalone app to users a year later. Now, of the 96 million people in Bangladesh who are online today, 75 million of them are subscribed to either Bongo’s YouTube channel or to its app. (Extra Crunch membership required.)

Notarize, a startup that enables people to get documents notarized online, announced today that it has partnered with Guaranteed Rate, one of the largest retail mortgage lenders in the U.S. Guaranteed Rate’s new product, called FlashClose, integrates Notarize’s real estate API and allows customers to close real estate transactions and execute mortgages online.

The service is available in all 50 states. Notarize’s products, including its consumer app, connect users to a notary public by video call to witness e-signatures and notarize documents. Its enterprise solutions include business and real estate APIs. Guaranteed Rate, which has had almost $25 billion in total loan volume this year, is now the largest lender that uses Notarize.

Notarize, which has raised $47 million in funding so far from investors including Polaris Partners, Lennar Corporation and Realogy Holdings, currently helps customers process real estate deals worth a total of about $1.5 billion online each month. Through partnerships like the one it has with Guaranteed Rate, it has added more than 50,000 realtors and title agents as users in the last three months.

Pat Kinsel, founder and CEO of Notarize, tells TechCrunch that 90% of people start searching for homes online and 60% apply for mortgages online, but many real estate and lending companies still require their customers to complete the closing process on paper. Allowing them to complete the entire process online can give companies like Guaranteed Rate a major advantage over competitors.

In a prepared statement, Guaranteed Rate COO Nikolaos Athanasiou said “We are thrilled to announce this integration with Notarize for FlashClose, which puts even more power in the hands of homebuyers—wherever and however they want to close.”

Notarize, a startup that enables people to get documents notarized online, announced today that it has partnered with Guaranteed Rate, one of the largest retail mortgage lenders in the U.S. Guaranteed Rate’s new product, called FlashClose, integrates Notarize’s real estate API and allows customers to close real estate transactions and execute mortgages online.

The service is available in all 50 states. Notarize’s products, including its consumer app, connect users to a notary public by video call to witness e-signatures and notarize documents. Its enterprise solutions include business and real estate APIs. Guaranteed Rate, which has had almost $25 billion in total loan volume this year, is now the largest lender that uses Notarize.

Notarize, which has raised $47 million in funding so far from investors including Polaris Partners, Lennar Corporation and Realogy Holdings, currently helps customers process real estate deals worth a total of about $1.5 billion online each month. Through partnerships like the one it has with Guaranteed Rate, it has added more than 50,000 realtors and title agents as users in the last three months.

Pat Kinsel, founder and CEO of Notarize, tells TechCrunch that 90% of people start searching for homes online and 60% apply for mortgages online, but many real estate and lending companies still require their customers to complete the closing process on paper. Allowing them to complete the entire process online can give companies like Guaranteed Rate a major advantage over competitors.

In a prepared statement, Guaranteed Rate COO Nikolaos Athanasiou said “We are thrilled to announce this integration with Notarize for FlashClose, which puts even more power in the hands of homebuyers—wherever and however they want to close.”

Already under fire for advancing Chinese foreign policy by censoring topics like Hong Kong’s protests and pro-LGBT content, the Beijing-based video app TikTok is now further distancing itself from U.S. social media platforms, like Facebook, Twitter and Instagram, with a ban on political ads on its app.

The company today says it will not allow political ads on TikTok, noting they don’t fit in with the experience the short-form video app aims to offer.

“Any paid ads that come into the community need to fit the standards for our platform, and the nature of paid political ads is not something we believe fits the TikTok platform experience,” says Blake Chandlee, TikTok’s VP of Global Business Solutions, who recently joined the company from Facebook.

“To that end, we will not allow paid ads that promote or oppose a candidate, current leader, political party or group, or issue at the federal, state, or local level – including election-related ads, advocacy ads, or issue ads,” he says.

TikTok further explains that it wants to be known as a place for creative expression, and one that creates a “positive, refreshing environment” that inspires that creativity.

It will further encourage these goals through its products like its fun filters and effects as well as its brand partnerships.

Today, TikTok offers a range of ad opportunities, including in-feed video ads, launch screen ads, and other native ads like its sponsored hashtag challenges. It also more recently launched a beta version of the TikTok Creator Marketplace, which will help to connect brands with TikTok creators for their marketing campaigns.

“Throughout all of this, however, our primary focus is on creating an entertaining, genuine experience for our community,” Chandlee continues. “While we explore ways to provide value to brands, we’re intent on always staying true to why users uniquely love the TikTok platform itself: for the app’s light-hearted and irreverent feeling that makes it such a fun place to spend time,” he says.

Political ads don’t fit with this agenda, the company believes.

But running those sorts of ads also come with significant challenges, as Facebook has found.

It had to create a system to verify the credentials of political advertisers, for example, which requires them to submit identification information like their street address, phone number, business email and website matching the email, tax ID number, or U.S. Federal Election Commmission ID number. It also launched a publicly searchable database of political ads, for transparency’s sake.

As a Chinese-run company, TikTok may not have the resources to run a similar operation. In fact, it seemed to be having trouble cracking down on the hate speech found on its app last year, VICE had reported.

The ban on political ads isn’t really new to TikTok, it’s more of a reiteration of the existing policy — but it’s a statement that TikTok hadn’t made before.

Bird has closed a $275 million Series D round led by CDPQ and Sequoia Capital, Bird CEO Travis VanderZanden announced at TechCrunch Disrupt San Francisco today. The round values Bird at a $2.5 billion pre-money valuation, according to sources familiar with the round. This round comes a few months after TechCrunch reported Bird was looking to raise a Series D round at a $2.5 billion valuation led by Sequoia.

“Nearly a year ago, we recognized that the world was changing.” Bird CEO and founder Travis VanderZanden said in a statement ahead of Disrupt. “Gone are the days when top line growth was the leading KPI for emerging companies. Positive unit economics is the new goal line. As a result, we pivoted from growth to unit economics as the top priority for the company. Now with the best unit economics in the industry, new Bird investors such as CDPQ see that we are paving the road for a long term sustainable and healthy business.”

Sequoia Capital previously led Bird’s $300 million Series C round back in June, with Roelof Botha joining Bird’s board at the time. Bird plans to use the funding to continue research and development for its variety of vehicles.

“The team at Bird exemplifies grit and has embraced a laser focus on the key drivers of unit economics in a complex business,” Sequoia Capital Partner and Bird board member Roelof Botha said in a statement. “The degree to which they were devoted to and accomplished strong contribution margins in a compressed timeline is rare for a company so early on in its development. We are thrilled to strengthen our commitment to Bird and look forward to seeing continued progress on their path to profitability.”

In July, Bird CEO Travis VanderZanden said Bird has positive unit economics on its new Bird Zero scooters, which accounts for more than 75% of its fleet. But based on one of the images VanderZanden tweeted, it seems that figure is based on a period of four weeks in the summer when scooter ridership is likely higher.

The month before, Bird acquired Scoot in a deal worth less than $25 million. That acquisition marked Bird’s first expansion into traditional bicycles and mopeds. Shortly before that, Bird unveiled a two-seater hybrid bike/moped vehicle called the Bird Cruiser. In addition to offering shared vehicles, Bird is also selling scooters directly to consumers. Prior to this round, Bird had already raised more than $400 million in funding and reached a valuation of $2 billion last June.

I’m chatting with VanderZanden at TechCrunch Disrupt SF right now. Be sure to tune in here.

Sebastian Thrun is waving a device in his hand with an excited, almost gleeful expression on his face as he trots from a makeshift aircraft hangar toward the secret project that Kitty Hawk Corp. has been working on for nearly two years.

The serial entrepreneur and co-founder of X, the Alphabet moonshot factory, isn’t trying to contain his excitement as he presents what appears to be a decibel meter.

Thrun, the CEO of aviation startup Kitty Hawk, and Damon Vander Lind, the physicist and electrical engineer who has been leading the project, are standing in an expanse of grasslands and low-lying, oak-dotted hills that can only be described as cattle country. But there are no cows to be found here. Instead, a low-slung, orange and black aircraft with eight rotors and a 20-foot wingspan sits on a small asphalt pad.

It’s called Heaviside. Vander Lind’s pink-hued T-shirt, the letters HVSD emblazoned across it, suddenly makes more sense than it did an hour before.

HVSD, which is named after renowned physicist and electrical engineer Oliver Heaviside, is Kitty Hawk’s third act.

The first is Flyer, a single-seater, all-electric, vertical take-off and landing vehicle powered by 10 independent lift fans that operates between 3 to10 feet off the water. Then there’s Cora, a two-person, autonomous taxi that Kitty Hawk unveiled in 2018. Kitty Hawk, which is backed by Google co-founder Larry Page, recently formed a strategic partnership with Boeing to collaborate on urban air mobility, particularly around safety and how autonomous and piloted vehicles will co-exist. The partnership will focus on Cora.

HVSD is an electric aircraft designed to go anywhere and land anywhere fast and quietly, Vander Lind says.

“If you build an aircraft that can land anywhere and then say actually, oh wait it can’t just land anywhere, no I need a big helipad and I need to build a bunch of structure and all that — you miss the point,” said Vander Lind.

And indeed, HVSD isn’t parked on a large runway or giant helipad. The aircraft, which weighs about one-third of a Cessna, is on a section of asphalt much bigger than its wingspan. Just beyond this manmade parking spot are acres of grassland and the occasional tree. There is no runway to be found.

The big promises that Thrun and Vander Lind are trying to deliver on here are speed, silence and ease of use.

Vander Lind, who earned his pilot’s license, commutes part of the way to work in a single-engine piston aircraft he fixed up. He takes a bicycle for the remainder of the journey. The physicist and electrical engineer, who was a lead engineer at the Alphabet-owned airborne wind turbine company Makani Power, notes that his commute, while fun, is hardly practical.

HVSD aims to deliver both an enjoying ride and practicality, Vander Lind said.

The aircraft is 100 times quieter than a helicopter, the pair said. And it’s faster. Thrun says HVSD, which has a range of about 100 miles, can travel from San Jose to San Francisco in 15 minutes. The aircraft can be flown autonomously or manually, but even then most of the tasks of flying are handled by the compute, not the human.

Moments after walking around HVSD, the decibel meter, still in Thrun’s grasp, gets put to work. A helicopter that is stationed about 150 feet from where we’re standing is fired up. After two minutes, the helicopter lifts off, it’s whop whop whop lingering even as the craft is more than 600 feet in the air and begins its circular flight path around the testing area. The meter pops above 85 decibels and stays there for several minutes. The decibels go beyond 88 decibels at landing.

Later, after the helicopter lands and the engine slowly winds down, the test turns to HVSD.

An engineer, who is standing in an open air tower, brings HVSD suddenly to life. Unlike a helicopter, the HVSD starts and lifts off in just seconds. There is sound as it lifts off — hitting about 80 decibels — but what’s striking is the brevity. The take off sound lasts fewer than 10 seconds. As HVSD gains altitude and then circles above us, the only sound is a few engineers and technicians talking nearby.

Once Thrun quiets the crew, the noise falls below 40 decibels, which is what a typical, quiet residential neighborhood registers at. HVSD is nearby at about 600 feet of altitude, but it is barely audible as it circles above us. An office with an air conditioning running might be about 50 decibels, Thrun says for comparison.

“The calculus here is that this has to be socially acceptable for people,” Thrun says. “There’s a reason why helicopters are not: they’re for rich people and they’re noisy.”

It took just a year to take HVSD from a concept and some sketches to building a prototype and conducting the first test flights. This past year has been spent testing and refining the aircraft and, as Vander Lind puts it, “trying to make it crash.” It’s a goal that they have yet to accomplish.

“This thing is really robust,” Vander Lind says pointing to HVSD before turning his sights onto the nearby helicopter. “On the helicopter, there’s a little bolt on top, and if you unscrew that, you take the cotter pin out, we all die.”

Kitty Hawk is testing HVSD with and without a pilot inside, which allows the company to push the aircraft and look for flaws and vulnerabilities. “We want to do everything we can to break it in the air, so when you get in it, it’s safe,” Vander Lind says.

It might be awhile before the public gets in HVSD. The Federal Aviation Administration allows Kitty Hawk to test its aircraft as long as it stays within view of the company’s engineers and test crew on the ground. And Thrun and Vander Lind acknowledge there’s more refinement to be done.

For instance, the cockpit, which fits just one person, is still just carbon fiber. Sitting snugly inside, and kicked back like one would be riding a recumbent bicycle, it’s not quite cozy. Vander Lind, who says engineers have slept in it as “one aspect of the testing,” reminds me I’m sitting on bare carbon. He wants to add a lumbar support, arm rests and other comfort features.

The interface of the aircraft at Kitty Hawk’s secret testing area has been stripped out. But Thrun tells me the interface will be simple to use like “pushing a button.”

The idea is for HVSD to be accessible to more than just the super rich and those who have a pilot license, Thrun says. And, of course, to make commuting easier and faster.

The average commute time in the United States is 53 minutes, according to the US Census Bureau. Looking just at the weekday commute, an individual still manages to log 231 hours a year commuting. On Heaviside, Thrun says, it comes to 21 hours a year commuting. “That’s 10 times faster.”

Thrun and Vander Lind are squarely in the visionary and dreamer category. But even they understand there is work left to be done if they ever hope to bring HVSD to the public. Safety is paramount and the team is working on the compute that will handle the flying as well as redundancies.

And then there is the regulatory piece. Thrun has tapped Mike Huerta, who served as FAA Administrator from 2013 to 2018, as an adviser to Kitty Hawk to help the company get closer to its goal.

Volvo group’s Polestar electric performance car sub-brand has announced pricing for the Polestar 2, the company’s second production car, a four-door mid-sized fastback that will begin production in 2020 and start shipping as early as next June. Starting prices are set at between 58,800€ (around $63,720 U.S.). Those prices include three years of service and maintenance and European value-added tax (VAT). Polestar also previously communicated that its rough guide pricing for North America was at around $63,000, so this is consistent with that, but the final actual price for American buyers will be revealed later on.

That’s a pretty competitive price in the electric performance sedan market: The Model S starts at $75,000 U.S., for instance. The Polestar 2 is really much more a competitor for the Model 3, however, and is priced more closely to a kitted out version of that vehicle.

In terms of what the Polestar 2 packs in performance, its estimated EPA range is set at around 275 miles (the Model 3 starts at 240 but ranges up quickly to 310 and 325 miles depending on battery options). It offers around 408 horsepower from its 300 kW electric powertrain, again just short of the Model 3 when that’s equipped with its dual-motor performance configuration. Polestar say that it’ll do 0 to 60mph is under five seconds, again sort of in the middle of the pack when you look at the Model 3’s full configuration lineup.

Aside from its electric powertrain, the Polestar 2 will have some other interesting techie twists, including an infotainment system based entirely on Android OS and shipping complete with the full suite of Google services, including Google Assistant and the Google Play Store. This is a deeper integration than just Android Auto, which is powered by an Android phone and basically just displays an interface on the in-car screen.

Like the Model 3, the Polestar 2 will initially launch at a higher price point, with more affordable model variations coming later on, including a base model starting at around $45,000 U.S.

We know the world of startup funding is competitive. In fact, I’m speaking at TechCrunch Disrupt on this very topic alongside pre-seed investor Charles Hudson of Precursor Ventures, early-stage investor Annie Kadavy of Redpoint Ventures. I’ve also written extensively for TechCrunch and ExtraCrunch about how founders can optimize their pitch decks to make the most of the 3 minutes and 44 seconds the average VC will spend looking at their deck. We’ve also analyzed the best time of year founders can fundraise to get the most attention from potential investors.

But what can VCs do to make sure they’re getting the biggest piece of the most promising looking companies? We dug into how founders choose their lead investor to gain some insight into how a VC can become more competitive in a rapidly growing market.

Before we dig into the numbers

The data included in this research came from companies that explicitly opted in to participate by responding to an automated email sent to them. We are incredibly appreciative to these founders for making this research possible. You can read more about our startup opt-in process and other aspects of our methodology here.

In this article, I’ll talk about how founders choose their VCs, both in oversubscribed rounds and non-oversubscribed rounds, and how investors can use that information to beat out their competitors.

For VCs, competition is getting harder

Getting a startup funded is a massive hurdle. The good news is there’s actually far more money available now than just a few years ago. In fact, in the first half of 2019 there was $20.6 billion in new capital introduced into the startup market.

Larger funds typically known for investing in later stages have introduced seed funds so they can invest with promising businesses earlier.  Kleiner Perkins announced a $600 million early-stage fund in January, GGV raised a second $460 million “Discovery Fund” last year, even Sequoia Capital operates a scout program with a $180 million fund.

This means smaller funds or those who only invest in earlier rounds might get overlooked when founders are looking for investors.

Investor meetings are a two-way street

In addition to having to compete for the best deals, VCs don’t get it right every time. For every Uber, there are hundreds of Juiceros. The reason they only spend a few minutes looking at a pitch deck is because they’re constantly looking at pitches in hopes they’ll come across another unicorn.

But while it seems like the investors are holding all the cards, if founders optimize their pitch deck and book their meetings in a short window, they can actually create a sense of urgency for the VCs. We’ve seen this recently with the amount of founders reporting oversubscribed rounds.

When looking at how founders chose their lead investors, we discovered that there was a massive difference between those that raised oversubscribed rounds and those that didn’t.

Being the first to move means a lot, until it doesn’t

What was the number one factor in founders deciding on who to choose as their lead investor? We found that nearly 48% of founders chose their lead investor because they were the first one to make the offer.

Anecdotally this makes sense. When DocSend was raising we received a lot of “maybes” during our first few meetings. However, once we had a term sheet most of those “maybes” flipped to a firm “yes.” In fact, many investors that had originally promised a $25k or $50k investment if we found other backers were suddenly asking for $300k or $500k.

We had so many investors interested that our round was oversubscribed and we had to make some choices about who we wanted as an investor. That could have been avoided if any of those VCs had simply acted first.

But when you look at the data a different way, we found that moving first was significantly more important in oversubscribed rounds than those that weren’t. And the more oversubscribed they were, the more valuable moving first becomes.

For founders whose rounds were more than 20 percent oversubscribed, 60 percent of them chose their VC because they came in first with a term sheet. But that dropped to 50 percent for founders that were only slightly oversubscribed and all the way to 38 percent for those founders that weren’t oversubscribed at all.

While we would have thought name-brand VCs might move first, and that top tier interest may cause an oversubscribed round, we found that not to be the case. In both oversubscribed and non-oversubscribed rounds 28 percent of founders reported that a name brand factored into their decision. And for those who chose a name brand investor, only 33 percent of those founders reported that their lead VC moved first. 

The more oversubscribed a round is, the more likely it is that some VCs aren’t going to make the cut. To avoid being the firm that didn’t get the deal it’s best to move quickly when you see a company you like.

A fast round isn’t always an oversubscribed one

Another surprising thing that came up in our research was the amount of time founders spent raising and how that affected their decision making. While we assumed oversubscribed rounds happened significantly faster than the average of 11-15 weeks, we found that oversubscribed rounds only came in slightly under, at 8.6 weeks. However, there was a lot of variability in that number.

We saw some oversubscribed rounds close in as little as 3 weeks and some take as long as 20. So there’s no way to tell whether a round will be oversubscribed based on the time spent fundraising. This means that even if you meet a founder who’s been raising for 10 weeks, it’s still smart to move quickly if you want to be the lead investor.

We would have also thought longer rounds would have benefited the first term sheet more, but there was virtually no difference in the impact of the first acting VC when looking at time. When looking at founders that spent less than 12 weeks raising and those that spent more than 12 weeks, there was virtually no difference in the percent that chose their lead investor based on the first term sheet (at 47 percent and 48 percent respectively).

Terms only matter in oversubscribed rounds

When choosing your lead investor, you would think the terms would be a significant reason to choose one VC over another. But we found that it was barely a factor for most people. In fact, only 4 percent of founders who weren’t oversubscribed cited terms as a major factor.

They instead focused on VCs that had experience in their industry (at 42 percent). But for oversubscribed rounds the percentage of founders who chose their lead investor based on terms shot up to 38. Meaning when the round gets competitive, so do the terms. But they still gave an edge to that first term sheet they received.

Interestingly, a potential deciding factor in oversubscribed rounds could be how well the VC and the founder get along. In those rounds that were significantly oversubscribed, over 46% of respondents said how well they got along with their VC was a factor in choosing them to be the lead. Compare that to only 19% of founders in non-oversubscribed rounds who cited rapport as a key factor in choosing a lead investor.

For many smaller firms getting edged out by bigger players boasting multi-stage funds, it may be as simple as being decisive and personable when it comes to landing the most competitive investments.