Female Foundry Week 52: In the shadow of the dry powder mountain. Metrics VCs care about now. What is activation rate. New SEC rule adds pressure on VCs.
Welcome to The Week 52, 2023 Edition of the Female Foundry newsletter!
Female Foundry - where female investors and founders meet.
In The News
Dublin-based University College Dublin (UCD) healthtech spinout Beyondbmi, co-founded by Dr Harriet Treacy picks €525k to launch a new platform to tackle obesity; London-based healthtech startup Peppy, co-founded by Mridula Pore fetches a $45m Series B round led by Albion VC; Polish crypto tax automation platform Cryptiony, co-founded by Hanna Milczarek raises a €500k Pre-Seed round led by ff Venture Capital; Sustainable clothing care business, Clothes Doctor, founded by Lulu O’Connor picks £500k from Cornwall and Isles of Scilly Investment Fund; Dublin-based athleisure startup Peachylean, founded by Sharon Keegan fetches €750k from High Potential Start-up, Enterprise Ireland; Romanian tech startup for vets and pet owners, Digitail, co-founded by Ruxandra Pui raises a $11m Series A round led by Atomico.
Spotlight
In the shadow of the dry powder mountain.
VC is the only private investment category in which dry powder is on track to rise from 2021 levels. In Q3 2022, global venture firms were sitting on $585.5 billion of capital raised but not allocated, according to PitchBook. As of the beginning of 2023, the situation is not getting any better. The sluggish deployment is driven by market uncertainty; growth investors are mostly sitting on their hands, hoping to do not more than 10% of the deals of 2021, those that have deployed their funds are struggling to raise another fund unless they have outstanding results or extraordinarily supportive LPs, one-off deals, random SPVs, Softbank or Tiger-like splurges are all gone.
But surely, the increased pressure to deploy LP capital will end this stagnation very soon? Not so easy. I would argue that it is currently in the LPs’ interest to slow down the deployment rate. In recent years, we have seen some of the biggest VC funds raised, but with high interest rates, it’s not in the LPs interest to have the capital called too quickly and all at once as increased inflation has made the venture capital class even more risky, and there is less interest of LPs to allocate more capital to this class - not a great timing for fundraising funds. I would not count on that changing until late 2023.
Fundraising
Metrics VCs care about right now.
This week, I spoke with six startup founders that are in full swing with their fundraising process. Most of them had relatively good traction and a solid understanding of their product roadmaps. But one thing was consistently missing, none of them had even a vague idea, when, if everything goes well, they could potentially hit profitability. With inflation roaring at a 40-year peak, VCs’ focus on profitability has overtaken the mantra of growing at any cost. Startups that raised funding at high valuations are now forced to justify them, stay lean and have a clear view of their cashflow, given market downturn and increased competition due to the sluggish capital deployment environment. Among usual business-model-specific metrics and time-to-profitability, what other metrics you should stay on top of right now? Read here ➯
What is activation rate and why it matters.
Struggling to understand why you have so few paying users despite a great number of visits to your startup website? Check your activation rate. Your activation rate helps measure the success of your onboarding efforts. A low activation rate can indicate that either your onboarding process is difficult or confusing - users are quitting before completing it, or your marketing and sales efforts are attracting low-quality leads. The first step is to define onboarding milestones, namely, events that increase the odds of users coming back and continuing to use your product e.g. a user refers a friend or creates the first playlist. Look for an event that, when users complete it, often leads to them becoming a paying or highly engaged customer. Generally, an activation rate below 10% is considered bad. What are the benchmarks? Read here ➯ How do you calculate an activation rate? Read here ➯
Analysis
Trick or treat? New SEC rule adds more pressure on VC investors.
After years of paying very little attention to the Venture Capital market, the SEC is finalising their work on a new rule that might eliminate private funds from seeking indemnification for simple negligence, bad behaviour, or recklessness, consequently making it easier for limited partners to sue VC fund managers. The drafting of the rule has caused dismay in the VC community in the US, that sees the rule as unnecessary, driving additional pressures on managers for little benefit, hindering innovation, and increasing operating costs of running a fund. Although the rule will apply not only to venture capitalists but also private equity firms, hedge funds and certain real estate investment companies, in reality, it is the venture capital class that will be impacted by it the most due to its high risk-high reward model. Should we expect FCA and equivalent bodies to follow? Read full story ➯
From the Community
Three Point Zero Podcast
Raising a VC fund as an emerging manager with Esther Richardot Reynal de Saint-Michel, the General Partner of Thena Capital.
This week, I spoke with Esther Richardot Reynal de Saint-Michel, the General Partner of a new early-stage medtech fund, Thena Capital.
In the episode, we talk about various aspects of raising a new VC fund as an emerging manager, strategies for managing the key challenges, medtech-specific evaluation criteria for founders, and why medtech is a hot investment category right now.
Hiring
Check Female Foundry Job Board, and join female-founded startups.
Peppy ➯ Account Executive | Red Points ➯ Antipiracy Analyst | Altovita ➯ Supply Chain Manager (Remote)
It’s been a great week! Have a great rest of the weekend!
Agata
Written by Agata Leliwa Nowicka, an investor, a two-time entrepreneur, and a founder of Female Foundry based in London.
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Check femalefoundry.co for more fundraising tools and investor content. View other Female Foundry articles.