LaunchCapital in 2018
By Cliff Sirlin
Originally published January 10th 2018
We at LaunchCapital are excited for 2018. As the year begins, I would like to share our perspective on the current investing environment and our plans for the upcoming year.
Over the holiday, I had the opportunity to travel on safari in Southern Africa. I found that spending time in nature, observing the ecosystem first hand, provided a unique perspective on efficiencies and balance. Nature embraces change and adjusts accordingly–important parallels for our lives as investors.
This reminds me of a famous experiment that took place in Yellowstone National Park in 1995. That year, 14 gray wolves were released into the park after having been extinct for the prior 60 years. The effects were dramatic and somewhat unexpected. Being natural predators, the wolves immediately cut the deer population in half. With the reduced population, vegetation that was previously consumed by the overabundant deer started to flourish. This created better feeding grounds for other types of birds and animals, specifically beavers. Once the beavers moved back into the park, they began constructing their dams. The effect was that the rivers of Yellowstone were rerouted, and thus the physical ecosystem of the park was permanently altered.
While this experiment was unfortunate for the deer, it created a stronger and more sustainable ecosystem for the wildlife that was able to adjust to the evolving environment.
Similarly, dramatic changes have been taking place in private investing. There has been a substantial influx of cash into the private markets, especially in the early and growth stage arenas.
According to the WSJ, from 2013 to Q3 2017, 516 new venture capital funds were raised by U.S.-based companies. PitchBook data shows that in the last year alone, VCs invested a record-breaking $84.5B in U.S.-based companies.
Source: PitchBook
The amount of capital invested in seed deals has increased (up 33.4% from 2014 and 5.5% this past year) while the number of seed deals has decreased (down 39.8% from its peak in 2014), according to data from PitchBook. This means that while larger checks are being written, it takes more traction to get funding. As has been said by many, Seed is the new A.
Source: PitchBook
These figures are sending a clear signal to the market. At LaunchCapital, we look at the changing landscape and see opportunities to fund exceptional companies.
Specifically, we are making three changes to adjust to the evolving 2018 landscape.
First, we’ve decided to focus our investing activities in Seed and Seed-plus opportunities. As we move into the new year, we plan to invest in companies that have demonstrated some form of product/market fit or some type of unique defensibility. Additionally, we will write larger checks to support the companies we believe in and will continue to aggressively support those companies in the future.
Next, in addition to investing in the typical “VC-backed” businesses, we will also be analyzing and investing in companies that are decidedly non-traditional VC opportunities. As the crowd has rushed into technology-only companies, many traditional industries that are considered “old school” (translation — solid cash flow businesses in non-tech sectors), have been overlooked. We plan to open the door to these types of opportunities, as well.
Finally, we are excited to double down on our efforts in the Mid-Atlantic and Northeast. Our firm’s origins are in Boston and San Francisco. Over the past couple of years, we’ve increasingly invested in NYC. We are excited to play a more active role in the Boston-Washington corridor.
2018 is an important year for LaunchCapital. As we celebrate our 10th Anniversary, we are very proud of the companies that we’ve supported over the past decade, and we look forward to many more years of being a founder-friendly investor.
Happy New Year!
Originally published at launchcapital.com.
