INSUBCONTINENT EXCLUSIVE:
Russ HeddlestonContributor
Russ is the cofounder and CEO of DocSend
He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at
Dropbox, Greystripe, and Trulia
Follow him here: @rheddleston and @docsendMore posts by this contributorWe know the world of startup funding is competitive
investor Annie Kadavy of Redpoint Ventures
minutes and 44 seconds the average VC will spend looking at their deck
gain some insight into how a VC can become more competitive in a rapidly growing market.Before we dig into the numbersThe 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
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 harderGetting a startup funded is a massive hurdle
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
program with a $180 million fund.This means smaller funds or those who only invest in earlier rounds might get overlooked when founders are
For every Uber, there are hundreds of Juiceros
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
found that nearly 48% of founders chose their lead investor because they were the first one to make the offer.Anecdotally this makes sense
$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
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
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
oversubscribed oneAnother surprising thing that came up in our research was the amount of time founders spent raising and how that affected
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
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 roundsWhen 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 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.
