Female Foundry Week 78: How many VCs are too many? Let them find you. Coming back to the start. Female Foundry x TechBBQ

Welcome to The Week 78, 2023 Edition of the Female Foundry newsletter!

Jul 16, 2023

From left: Revital Nadiv, Viktoria Kanar, Katharina Elisa Davids and Ana Selina Haberbosch.

Female Foundry - where investors and female founders meet.

In the news

Berlin-based Seedtrace, founded by Katharina Elisa Davids and Ana Selina Haberbosch fetches a €2m Seed round led by Alpha Ventures and Twip to bring more transparency and accountability to the supply chains; Also Berlin-based Re-Fresh Global, founded by Revital Nadiv and Viktoria Kanar picks up a €1.1m Pre-Seed round led by Earlybird and Serpentine.vc to turn textile waste into high value materials; German insurtech platform Hepster, co-founded by Hanna Bachmann bags a €10m Series B round led by Element Ventures to fuel its path to profitability.

Spotlight

How many VCs are too many?

Does venture industry need to shrink to adjust to the new normal?

In 2021 and 2022 combined, VCs invested more than $1tn in startups globally. That means that with a decent return of 3x venture firms would need to return more than $3tn to their LPs to cover the investment made in those two years. That has never happened, at least not during such a stagnant exit market. In the peak of startup valuations in September 2022, when total venture capital AUM reached $2.03tn in September, we saw 298 unicorns globally, already far fewer than the 787 in the previous year. So far, in Q1 this year we saw just.. 21 unicorns created.

But unicorns and exits are only part of the story. There were 817 venture capital firms across Europe in 2022. More and more top VC firms, however, are hoovering up larger portions of LPs’ capital, which in return, is pushing many of the remaining VC firms into a death spiral. What is a death spiral? Lesser-known VC firms often struggle to win the best deals that leads them to overpay to get into the most promising rounds or settle for second-rate startups. Once their investments underperform, their track record takes a hit, making the firm struggle to raise capital, lose top talent and not be able to support startups they have invested in. Eventually their brand suffers, which means that they struggle even more to win the best deals.. and eventually die. - The risk-averse, over-deployed LPs are not willing to make bets backing less-performing, unknown firms.

So, consolidation is already on the way, with many 2nd tier firms getting swept up in the same hype as the companies they once invested in.

Fundraising

Let them find you.

In London, where I am based, there is probably one demo day for every day of the week these days. There are accelerator demo days, investor meet up presentations, graduation days, pitch competitions. Compared to say, six years ago, when most VCs were sitting behind tightly shut doors, and few of them had a barely functioning website, let alone shared their contact details (the latest capital boom quickly changed that) today, there are endless opportunities to engage with VCs. And most founders take them. And of those that take them, some take them in spades.

There is always a group of startups that regularly appear on demo days. When I first saw them few months ago, they were “in the middle of raising a round”. A few months later, at yet another demo day, they were getting “real fundraising momentum”, and now, three months in, they still pitch themselves as “a hot deal”. I know that fundraising times are tough, but overexposure can hurt you, and it can hurt you in multiple ways.

Remember, VCs like to think about themselves as tenacious hunters. It sounds so great for a VC to be able to say “Yeah, that company we made a 16x on? I met a founder at a detox retreat”. Even though sourcing startups is part of every VC’s job, pitch days, just like dating apps, where startups come to you (AND to a hundred fifty two other investors in the room) make a deal somewhat less sexy.

So, yes, create a company page on Dealroom and Crunchbase, make sure you use relevant and precise key words to describe your startup. Show up at demo days, if you can take any time away from building. But know that the VC game is changing and an increasing number of firms are heavily investing into sophisticated AI tools that can pick up companies’ growth signals to find the best deals, remotely. So focus on your customers, focus on your product and ..let them find you.

Analysis

Coming back to the start.

According to the latest data, the number of companies returning to private equity ownership after a short period on the public markets is on the rise. So far in 2023, there have been 13 take-private deals that had been publicly traded for less than five years in the PE sector, totalling a significant $24.6bn. And this number is expected to raise. 2020 saw just 7 IPO “U-turns”, 2021, 14 of them, and 2022 ..32.

Even though the reasons behind this resurgence vary, they are mostly driven by the increasing appetite of PE firms, who see potential for significant growth and operational improvements for undervalued companies away from the public eye.

From the Community

TechBBQ x Female Foundry

Female Foundry is an official partner of the TechBBQ in Copenhagen, the annual conference focused on the Nordic ecosystem, taking place on the 13-14 of September, and we have a 2 x Tickets to give away to the member of the Female Foundry community!