Money Falling From the Heavens, Thanks to VCs
You've had that idea bouncing around inside of your head for years now. You're certain that the idea is going to make someone very wealthy and maybe very famous if they ever do it. Instead of waiting around for someone else to think of your idea and put it into action, maybe you should do it yourself. If your first thought is that you don't have the money to do it, think again. 2022 isn't the year to let a lack of money stop you, because startup capital has been abundant.
A Big Year for Funding
In 2021 venture funding hit new heights, blowing past where it ended in 2020. According to Crunchbase, global venture investment in 2021 totaled $643 billion, almost doubling 2020's figure of $335 billion. In an environment where bond yields are low and successful stock picking is becoming more difficult by the day, investors have put more money into startups in hopes of big investment returns.
In addition, the money being invested isn't just going to mature private companies. Companies in their seed-stage raised $29.4 billion in 2021, $10 billion more than in 2020, and early stage companies raised $100 billion more in 2021 than they had in 2020. According to Crunchbase, 17,000 startups received funding in 2021. If you're not familiar with investment or venture capital jargon, all this means is your idea, if good, has a chance of receiving some form of funding.
Where the Money is Being Thrown
If your million dollar idea has something to do with banking, investing, payments, or finance, then your chances of getting funded may have increased. Venture investment in finance saw the highest year-over-year growth among leading industries. With public companies like Block ($SQ) formerly known as Square, Affirm ($AFRM), and even PayPal ($PYPL) making millionaires in the public markets, it's no wonder that VCs are betting big on fintech and finance startups.
If you're not a finance wizard don't sweat it. In 2021 a good portion of money also found its way to health care, e-commerce, and transportation startups. Climate tech is another hot area that's been able to attract big money. Morning Brew reported that $0.14 of every VC dollar between H1 2020 and H1 2021 went towards climate technology.
Hans Tung, from GGV Capital provided even more insight into where VC money has been flowing in a recent interview. Tung noted that the current environment is about startups that cater to tech that is business driven, like cybersecurity, data management, and remote-work. Airbnb ($ABNB), Affirm, and Peloton ($PTON) are just a small few of Tung's past select investments.
Money Thrown About Usually Ends Badly
From the amount of companies that received initial funding and late round funding in 2021, it feels like money is being thrown at every good idea, and entrepreneurs should beware.
There are some within the VC industry and outside of the industry who believe the private funding market is in a bubble. Some have even likened it to the 2000 dot-com bubble. The dot-com era produced solid companies, think Amazon, AOL, Booking Holdings formerly known as Priceline to name a few, but then investors just started throwing money at any company that ended in dot-com, no matter what the company did. It took only a few short years for markets to realize that many of the dot-com companies we're investment worthy, and the dot-com bubble popped, bringing down the markets and leaving a pile of unemployed former dot-com employees.
Bain Capital partner Matt Harris, who has seen five companies he's invested in go public over the past year has a feeling that the speculative startup bubble may pop soon. Harris admitted to the Wall Street Journal in an interview that things have been going too well and it can't continue like it has been.
In 2021, seed and early stage companies gained a median valuation of $26 million, up from $16 million in 2020. In some cases, companies are raising big money and receiving big time valuations without having a proven go to market model or without proof of being a market fit. Typically, when investors start throwing money at anything that moves, bad things happen.
However, Peter Flint, who has been on both sides of the game, first as an entrepreneur and now as a venture capitalist, believes that what's going on now in venture funding is not similar to 1999 and the dot-com bubble. Flint thinks that we are currently in a golden age of startups because of the abundance of capital available, and also the abundance of talent available, which was not there during the dot-com era.
Timing markets are extremely difficult, and their could be a bubble in the venture funding market, but when that bubble pops is anyone's guess. And if you're considering becoming an entrepreneur, before you start cold calling VCs to pitch them your million dollar idea, you could better your chances of a successful business and a successful money raise by getting a minimum viable product out there. The product doesn't have to be what you would produce if you had millions of dollars backing you, it just needs to be something that you can put into the market and gain feedback on. An MVP, while they aren't needed to raise money, can provide lots of information about your idea, like for one, does the market think it's a good idea, and two, are they willing to pay for it?
In the 90s, Amazon just sold books, books was the company's MVP, and the information gathered from selling books allowed Amazon to navigate the burst of the dot-com bubble and become the trillion dollar company that it is today.
You Don't Have to Be A Techie to Get Funded
If you're not a tech genius, that's okay too, venture capitalists have been spraying the money everywhere like water from an open NYC fire hydrant. In a recent Wall Street Journal article about the rush to invest in startups, (just a heads up, the story is behind a paywall), the article starts off by discussing a coffee shop, Blank Street Coffee specifically, which received another $35 million in funding just three months after receiving $25 million in funding. So you don't have to be the next Jack Dorsey to get funded, you could be the next Howard Schultz.
But if your idea is a tech based one and you have no knowledge about how to make an app or create something techie, you're still in luck. No-code sites like Bubble allow entrepreneurs to create tech centric platforms with no coding experience. Some companies have been able to use what they've created on Bubble to get venture capitalist funding.
Idea, Product, Funding, Billionaire
For many reasons which I won't get into now, there is a lot of money circulating, and those that have lots of it are willing to part with it in hopes that they can receive very big returns in the future.
If you're fighting with the thought of starting a company or working on that idea you've been thinking about forever, now is the time. The investment capital is abundant and it is flowing to all types of startups. The trend of big investment into unproven companies looks to continue into 2022, but don't sit back, attack now, because as 2020 taught us, no one knows what will happen next week or next month. Work on your idea, develop your product, get your funding, become a billionaire, you can do it.