The VC-PR paradox

The mindbending consequences of megafunds and megarounds

Silicon Valley, we have a problem. (And no, not just the growing distrust, distaste, and deception from #metoo, Cambridge Analytica, Theranos, to name a few recent scandals).

We have a PR problem. It’s about the relationship of capital and mindshare, in which companies with the largest rounds get the largest megaphones. At best, this perpetuates hype. At worst, it can perpetuate economic inequity.

First, some facts.

1. 2017 marked the peak of VC capital invested in the last decade, and that capital is increasingly concentrated in large deals

According to Pitchbook, 2017 was a peak year, surpassing 2015:

Source: Pitchbook

However, deal count has declined, with more money going into fewer deals. Megarounds have become the new normal. As of Oct 2017 data, “deals with a valuation of $1 billion or more represent less than 1% of the deal count — but they’re nearly 22% of the aggregate value so far this year.”

By Q3 2017, there were eight US based companies raise VC rounds that total at least $500 million:

Source: Pitchbook

That trend is even hitting earlier stage companies, with round size on the rise according to Crunchbase data.

Source: Crunchbase

2. There’s a lot of money, but it’s not equally distributed across state lines, gender or race

Looking at US data alone, capital is highly concentrated:

  • Location — “Today, just the top five metros — San Francisco, San Jose, New York, Boston and LA — account for more than 70 percent of venture capital investment across the United States,” according to CityLab.
  • Gender — Female founders got just 2% of VC capital in 2017, although women-founded companies made 4% of all VC deals, according to Fortune. Valentine Zarya explains, “The gap between the percentage of deals and percentage of dollars that go to women hints at the fact that VCs are writing smaller checks for female founders. The average deal size for a woman-led company in 2017 was just over $5 million. For a man-led company, that number is a little less than $12 million.”
Source: Fortune
  • Race —”Only 1% of funded startup founders were Black, while they make up 11% of the overall US population,” according to this report by CBInsights. (Perhaps worse, the best data I could find on this topic is from 2015.)

3. There’s a lot to cover in tech, but reporters are slammed.

For the 15 years from 2001 to 2016, employment in newspaper publishing was cut in half:

Source: BLS

This data reflects a combination of shuttering publications and leaner teams. And the pressure on journalists is real. Some tech publications expect each reporter to publish up to five articles a day.

That pressure often translates to a repetition of top headlines. It’s not uncommon to read the same story in multiple publications each day, with (some) reporters who are strapped for time need to fill their daily quota and aware that top news will drive clicks.

…In sum: there’s a lot of money, it’s highly concentrated, and there are fewer reporters to cover all the business and tech news. The impact of these trends is a VC-PR paradox.

Capital consolidation + media consolidation creates outsized market impacts, where something that “could be” becomes what “is.”

When I started working in tech marketing in 2010, it was an era of high fives and hyped releases. Small funding rounds at small startups made TechCrunch headlines. New features were considered newsworthy, and the startup community served as a beacon of hope after the 2008 recession.

Today, large funding rounds by well-known VCs create headlines. And those headlines create an air of inevitability for the startup, and the category. And an air of inevitability provides cover for the normal startup grinds: trial and error, revenue misses, dysfunctional cultures, ethical slips, and worse. And in some cases, it leads to follow-on rounds and megarounds and in some cases, unicorns.

I’ve been told by some reporters that if the round is less than $100M, it’s not news. And that makes sense — with deal counts north of 10k per year, stories about smaller funding rounds or bootstrapped businesses are just not feasible. Plus, VCs spend their days vetting businesses. Why not trust their signal from the noise?

Why not? Well, VC capital is missing the innovation of women, people of color, and most of America, so the risk is far greater than perpetuating the hype of some not-so-sound businesses. The risk is that the only stories that are told are those of white men living in SF and NY who raise tens of millions of dollars.

Narratives matter. They shape our perception of reality and possibility. Changing the future requires changing the narrative, and right now, the narrative is being written by VCs with big checks.