The Sentiment Index, a quarterly survey and report from Visible and Hyde Park Angels leverages insights from investors as an indicator of important trends that immediately and meaningfully affect companies, investors themselves, and anyone actively involved in the early-stage market. We gauge probable future investment behavior and help companies and investors make more informed decisions around fundraising, hiring, and growth strategies by understanding the market expectations of top early-stage investors.
In this post, we wanted to give you a quick sneak peek of some of the things we learned this quarter in talking with dozens of investors actively engaged at the Seed and Series A stages. If you’d prefer to dive right in, you can download the report for free here.
1. The seed stage funding party is likely to end, but not as soon as some think
One key thing that the raw investment data and the investor sentiment lined up well on was the possibility of the long-looming Series A crunch coming to pass as more and more companies find it possible to raise a Seed round, build a solid product and start bringing on paying customers but then have trouble hitting the consistently increasing Series A bar. While the number of deals done at the later stages has remained relatively consistent over time, Seed stage investment has taken off, increasing competition for customers and for follow on investment.
This trend led many investors in our survey to comment on what they anticipate will happen with those recently funded Seed Stage companies here in the near future.
There is a glut of Seed funded companies doing well, but not well enough to grab one of the limited Series A slots. This playing out will shape a lot of what is to come in the near term. – Surveyed VC
Continue to see higher quality applicants for our seed stage investments but need more bridge money between Seed and Series A – Surveyed Accelerator Director
To hear investors talk about it, one would think that the bubble is on the verge of bursting tomorrow. After diving deeper into the data, it is clear that this is not the case. And while raising a Series A may pose problems for a larger percentage of companies, the Seed Stage funding environment will remain robust. For an in-depth look at why this is the case, check out page 9 of the Q2 Sentiment Index.
2. Recurring Revenue > The Sharing Economy…for now
In our Q1 survey, one investor made the claim that “recurring revenue rules” and it seems this is still the case among the group of investors we surveyed as a quarter of respondents are most bullish on the Enterprise SaaS market.
Over the course of the last quarter, the On-Demand market gained a greater mindshare (and significantly more walletshare) among our group of investors. The market remains in its early days despite megarounds raised by the Ubers and Lyfts of the world but the future looks promising (as if you needed me to tell you that). As new companies in the sector are formed seemingly by the hour and money continues to pour in, it remains to be seen what the M&A market will look like in the space over the next few years.
3. “Discipline” is the mot du jour in the seed stage market
Our team is in Montréal this week for the International Startup Festival which we felt warranted a little French flavor (or is it flavour?) for this post. If you haven’t been keeping up with your Lingvist practice, mot de jour means “word of the day” and right now, the word on every investor’s mind is “discipline”. Investors worry about a lack of discipline from fellow investors jumping hastily into companies at inflated valuations. They also worry about discipline on the company side. Many claimed to see increasing burn rates across the industry, partially driven by entrepreneurs thinking that their next round will come as easily as their last.
“If you are a 20-something tech entrepreneur you could be forgiven for thinking that seed-stage investors, Angellist Syndicates and widely available angel money always existed” – Mark Suster of Upfront Ventures
The Q2 2015 Sentiment Index comes in at just over 30 pages and takes a deep dive into what is on the minds of top early stage investors from around the world. The reports looks at investor sentiment on the current state of the market as well as their near (next 12 months) and long-term (next 3 years) expectations for what is to come and is designed to help your company make smarter decisions around fundraising, hiring and general growth strategy.