Rice Business Report September 2019 September 2019 Rice Business Report | Page 27

Rice Business Report September 2019
Circular Patterns in Venture Capital and Angel Investing: Interesting Trends and Tips
By Alicia Castillo
1. During the past decade, the size of seed rounds has remained stagnant and number of deals have de-
creased. To the untrained eye, it seems that there is more competition for seed dollars. Below the sur-
face, however, startups are recycling founders experience. The reason why the number of deals has de-
creased is that teams are better prepared, are more financially savvy, have access to better-priced sup-
port, waste less time and resources, are using other forms of funding PRIOR to seed rounds, and are piv-
oting or deciding to get out earlier -at the pre-seed stage. (Founders will jump into exploring new oppor-
tunities).
Founding teams are recycled
2. More firms seeking seed rounds already have sales, expression of interests, and some form of market
validation as a result of the circular economy of entrepreneurial mind and action. Firms that seek seed
rounds are more advanced than 10 years ago. Founders are using other ways to get funded (as they
should! Because seed funding is very expensive!), AND they are also recycling the experience of founding,
co-founding, advising, and/or being early employees in previous firms. This is creating a circular economy
of entrepreneurial experience. Not just serial entrepreneurs but a large pool of people who have experi-
enced startup development (failed, successful, and everything in between, in so many roles!)
Supplier of funds are recycled
3. More investors are getting into each round, and seed rounds have become more collaborative. More
and more small funds, angels and angel groups are co-investing. That means more eyes are evaluating
deals (GOOD) but also BAD deals are getting through because the impact of each deal in the overall
portfolio is lower, and the FOMO (fear of missing out) can get that signature! Think Theranos (ouch).
TIP: Nobody talks about the herd mentality and there will be some lessons to learn going forward. Be-
cause of the cycling and recycling nature of funding, early investors are able to scan deals early, with low-
er amounts, and, if they want to play in future rounds, they need to get in early and with others: pay to
play.
Founders and funders' recycling is also changing the exits:
4. Exits are being recycled too! Companies are being acquired, taken public, broken into pieces, resold,
privatized, re-public'ed, and there are many emerging opportunities for exit. This is actually an area ripe
for disruption. Welcome to the world of recycling exits
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