The Rich Get Richer
VCs are all about what is happening now and are not focusing as much on what will happen in five to ten years (the seed/early stage markets).
The above statement was put forward today by Fred Wilson in his latest blog post titled “The Rich Get Richer”. It’s hard to argue with someone like Fred who has been involved in some of the most succesful deals in New York’s tech history. In that post, Fred discusses the figures in VC funding for 2014 that have just been released, in which we saw a huge rise in funding over the previous year, but a disproportionate focus on later stage investing. The bottom line being, even though funding increased by 61.5%, early stage investing is still pretty much where it was, and for me that is a huge issue I can see mimicked in the Middle East market.
Everyone is rushing to get in on a deal for the rare success stories we see here today, yet not many have taken a big interest in looking to fund the new wave of companies coming through. We see that with funds being created with a sole focus on Series A or later rounds such as Leap Ventures with a $71 Million fund or Arzan VC (even though I don’t understand how a “Series A and Post Series A fund” has a full commitment of only $5 million).
As the ecosystem looks to build itself up, early stage investing will be an essential factor in realising that growth, as how can companies reach a series A or B stage without the initial capital to build their product, hire a great team and get their product to market.
In a market with a severe lack of accelerator programs, none with the relative impact on the ecosystem as a whole, an angel investor market with no serious background of being involved in tech startups before (who can blame them, the market is only 10 years old), it’s up to VC’s who clearly have the ability to raise funds and have the required background, to be proactive in funding at the Seed Stage.
The future of a tech hub depends on producing multiple succesful startups consistently, where founders can then build on their experience to create their second and third startups after that, reinjecting knowledge, mentorship and funding through exits, into the ecosystem to create an even better second and third generation of startups 10 years from now.
So as Fred Wilson continues to state:
Round sizes have gone up and burn rates have gone up, but so much of this is limited to a hundred or a couple hundred companies. The rest of the market is more or less where it has been for years. The rich are getting richer. The middle class is stagnant. And the people who can’t raise a round still can’t. Only the top end of the market has really changed over the past five years.
Kind of like the entire economy, isn’t it?
If these are the issues at hand in the U.S tech industry, which many claim to be going through a “seed stage boom” as stated in a great post on First Round’s Blog, what can we say of ours?