Early stage startup deal flow drops 23% in Q2
Early stage entrepreneurs are left behind in an economy flush with cash
Venture capital has been moving at breakneck speed in 2021. Global venture funding is up over 61% in the first half of the year, and shows little sign of slowing down.
Unfortunately, this capital is finding its way to fewer startups further along in their journey. When isolating only early stage companies, we see a massive drop in deal flow. From Q1 to Q2 2021, the number of deals funded in seed and angel stages has dropped 23%.1
While the technophiles focus on the immense opportunities becoming available due to the market being flush with capital, the reality is opportunity is concentrating to an ever decreasing number of firms.
When markets become bloated, investors have a tough time figuring out where to stuff capital. As the number of capital suppliers increases competition increases accordingly, driving down return expectations. In an effort to increase certainty and decrease risk, investors are moving to later stages with their dollars.
Capitalism is happening to venture capital, changing it as the world of money itself evolves.2
The news isn’t great for those looking to jump into the world of entrepreneurship. While there is more capital than ever available, your chances of getting it are getting smaller.
As traditional startup financing moves away from early stage businesses, new funding sources and business models are popping up to fill the void. They carry their own risks, but with the trends expected to continue, early stage entrepreneurs would be wise to consider alternatives.