How SOSV Invests At Scale And Ranked #2 Most Active Seed VC Globally in 2019
Comments on the Ranking and its evolution from 2018
While many of the companies listed were new compared to 2018 — which might come from either incomplete data reporting or a change in the funding landscape — here are a few observations.
a. The Rise of the Rest
Half of the Top 20 across 2018 and 2019 came from outside the US. Notable presences are:
- China: Sequoia China, Tencent Holdings, IDG Capital
- State-sponsored programs: in Chile (Startup Chile) and Hungary (Hiventures Investment Fund)
- Locally strong: Groups in India, Germany, Switzerland and the UK manage to invest at scale despite the limited geographical focus.
b. More and more global players
Many invest beyond their country of origin.
If you look at the top 3:
- YC: One third of its 2,275 startups were from outside the US
- 500 Startups: Half of 2,200+ startups (Source: 2018 data — now over 2,300).
- SOSV: Over half of our 900+ investments are non-US. In 2019, This number reached two thirds of our 139 new investments.
It’s also quite remarkable those 3 funds combined invested in over 5,500 startups!
Now, both ‘The Rise of The Rest’ and ‘Going Global’ should not come as a surprise: half (78 out of 142) of the new unicorns of 2019 came from outside the US (source: Crunchbase), which in turns fuels both investment and the creation of startups.
More startups => More unicorns => More investment => More startups
But going global is not a walk in the park: as non-US ecosystems mature, local players have many advantages in speed, know-how and networks.
To succeed, investors went with different strategies:
- Sequoia and 500 Startups have very independent local teams.
- YC has stuck with its Silicon Valley presence, with an attempt in China.
- Plug and Play and Techstars expanded by continuing to rely on corporate partners.
- SOSV we picked long-term, tough sectors early, and leverage unique ecosystem assets (e.g. Shenzhen’s supply chain, Silicon Valley’s and NYC’s boom in synthetic biology). We also benefit from our cross-border bridges to Asia thanks to our Chinaccelerator program in Shanghai (an international gateway to China) and MOX in Taipei, with its deep pool of productive developer talent.
c. More rounds
- The total of seed deals in the ranking went up 50% from about 600 to over 900.
- A large part of it came from YC, SOSV and 500 Startups.
- Other investors numbers are harder to comment on, as many did not appear in the 2019 ranking, possibly due to errors in reporting.
In the case of SOSV:
- While our entry point is always at pre-seed via our various accelerator programs, we have increased the number of follow-ons both in terms of rounds and capital deployed. In fact, Follow-ons represented over three quarter of the total amount invested in 2019.
- As we started deploying our new $277M fund a year ago, we were able to do more and longer follow-ons to support our portfolio longer, and maintain or increase our participations.
Investing at Scale
Many are baffled by the idea that a firm could invest in over 100 startups per year. Indeed, it requires unique structures that differ from typical VCs.
We’ll share below some hints of how we make it work at SOSV.
Unique resources => Better deal flow => Better results => Improve resources => Better deal flow
a. Build great deal flow
How do we attract great companies?
- By investing at pre-seed in relatively difficult categories (especially hardware and life sciences), we see a significant share of the relevant deal flow.
- By offering unique resources (in-house expertise, labs, peers and networks) we are often the first choice for the most promising startup.
- The fact that our hardware and biotech programs offer $250k in cash and resources also makes them among the best-funded programs out there. It is roughly 10 times more than when HAX started in 2012.
- We also have several up-and-coming successes that prove our model (like Perfect Day, which just raised $140 million for lab-grown milk protein, or several of our robotics companies).
b. Use large support teams
It doesn’t come cheap, but by having over 100 team members to oversee our programs and support the startups, the staff/deal ratio remains manageable.
c. De-risk before doubling down
Each of our programs lasts 3–6 months, during which founders spend most of their waking hours working in our office with our team to take their product from lab to market.
The benefits are:
- We help founders overcome many barriers and reduce their risks.
- By the time we deploy the majority of our fund during later rounds, we have an intimate understanding of their technology, execution and character. We thus reduce our risk.
The landscape is constantly evolving:
- New investment models (e.g. ‘Talent Investing’ by EF and more)
- Further segmenting of funding rounds (pre-seed, post-seed, pre-A, etc.)
- Some sectors might grow and segment (SaaS, A.I.), while others might lose steam (crypto? VR?).
Investors positioned at the very early stage have to keep their ear to the ground to adapt swiftly, while retaining their edge.
To do so, some funds chose to switch to new themes. Our choice has been to pursue long-term fundamental shifts — from planetary and human health to ‘chips with everything’ in enterprise and industry.
Those trillion-dollar opportunities will create many winners among startups and investors.