This year, 2021, was a tremendous year for the fundraising industry. According to one of my favorite fundraising research sites, Crunchbase (I’m going to quote Crunchbase a lot today because ❤️ them), the first six months of the year saw a record amount of capital being deployed worldwide. It was a staggering amount of dollars that were invested globally – $288B. That number is a 95% increase over the first six months of 2020.
Now, I know what you might be thinking. Wasn’t 2020 a weird year considering everything that happened with COVID-19? Yes, it was. So, the comparison may not be entirely fair. Regardless, the records set in the first half of 2021 are good news for startups, investors, and the world economy.
If you are curious which venture capital firms did the most deals during that period take a look at the graphic below. You’ll see that many of the well-known VC firms continued to invest heavily. The list is a who’s-who of firms that you should be targeting as potential investors if you have a startup that is fundraising.
Fundraising Trends (Hot Industries)
If you want to consider which industries were and are hot for fundraising efforts then I believe we should examine Series B investments.
Before we get into that, as a reminder, the typical flow of investment series goes something like the following:
- F.F.F round – money injected into the venture by family, friends, and the founders.
- Seed round – the first investment from an outside investor who is usually not a big VC firm but more an angel investor.
- Series A, Series B, etc. – these are subsequent rounds of funding that occur over time as the venture grows and accomplishes more milestones. While some industries exit sooner and others exit later, on average you shouldn’t expect to see significant exits until around the D round territory.
I believe looking at the B round for trends is a good measuring stick. That’s because the A round is a little too early and the rest, Series C and forward, is a little too late.
Still leaning on Crunchbase for data, the top industries, by round count, that received investor capital during the first half of 2021 were health care, financial services (I imagine this is largely in fintech startups), shopping and e-commerce, transportation, real estate, and security (as in cyber-security; not Paul Blart: Mall Cop).
What does that mean for your startup if it isn’t in those industries? It just means that investors as a whole are less focused on your space. But it does not mean that you can’t find investors to capitalize your venture. In fact, I might argue that if your startup is in a different industry you might have a better chance of fundraising. Why? Because plenty of founders will see the above chart and build a startup in a given industry because they see investors focused there. When investors are focused in an area it can become crowded. Don’t be afraid of playing in less crowded waters. There may be less “sharks”, but there is also less competition.
Other Trends
There was some fundraising activity that occurred toward the late part of 2021 that you should also consider. Particularly around upcoming industries. These are industries where I fully expect investors to put a lot of their focus in the coming year.
SAFT for NFTs
That sure is a lot of acronyms. Allow me to explain.
Have you heard of a SAFE before? If not, here is the low-down. A SAFE, or Simple Agreement for Future Equity, is a very popular way of fundraising when a startup is at the very early stages, such as when it is pre-revenue. A SAFE is much like a convertible note that allows the investor to inject capital into the venture in exchange for future rights to equity in the startup without having to immediately establish a valuation.
So, what is a SAFT? It is a Simple Agreement for Future Token. Fundraising by pre-selling tokens has been around for a few years. So the concept of SAFTs is not new. But it is trending. Particularly when the token being pre-sold is a NFT (non-fungible token).
Big names are jumping on the SAFT fundraising method, including sharks like Mark Cuban. If that isn’t enough validation of the trend, two startups Dapper Labs and Sorare raised $900M combined.
Metaverse
That one word will probably make you think about Facebook rebranding its corporate name to Meta. The social media juggernaut did that because they are betting big on the metaverse as the future of technology.
The metaverse itself is a trend for 2021 fundraising and will continue to be a trend next year. For example, recently a metaverse startup went public via a SPAC.
SPACs
Speaking of SPACs (Special Purpose Acquisition Companies) were definitely a trend in the startup funding space this year. So far there have been 359 SPAC filings, that is almost one a day, that raised $95B.
Now for a hot take on SPACs. My belief is that the amount of SPAC fundraising will slow down in 2022. I’m not the only person that believes that SPACs will slow their pace next year. For example, this article shared that “there were 300 SPACs formed in Q1 2021 but less than 50 in Q2 and only 16 in July”. That isn’t too much of a stretch since 2021 saw record levels.
So, what do all of these trends mean for you as a startup founder? First, I would tell you that fundraising activity is still running very high. Therefore, there is no lack of potential investors for your venture. Second, the way in which startups are raising capital is evolving. Investors are still writing old-fashioned “checks” where money is wired into a startup’s bank account. But, the popularity of crypto-currencies and NFTs is providing new ways for startups to fundraise. Finally, as they always have, investors are focused on certain industries that they prefer to invest in. But, if you look at the top industries mentioned earlier there has been little change. Healthcare, fintech, etc. have been for a while and are still hot industries.
