While startup founders are typically optimistic both about their technologies and the future, a new survey of startups in 2015 from First Round Capital found a surprising number of founders who are expecting fundraising to get a lot harder in the next few months.
“Some of these findings showed more of a lack of optimism, or more pessimism is a better way of saying it, than we’d been expecting,” said Josh Kopelman, a partner at First Round.
If you had asked Kopelman in advance how many founders thought it would be harder to raise money, he would have said it would be 60 to 70 per cent that would find it harder. Instead the results showed 95 per cent of seed-stage, 97 per cent of Series A, and 99 per cent of late-stage founders thought it would either remain the same or get harder to raise money.
“When you only see one per cent of late stage founders thinking it’s going to be easier, that’s a pretty extreme measure on the pessimism scale and that’s surprising,” Kopelman said. “More than seven out of 10 thought we were in a bubble.”
To be clear, that’s not a sign that startups are struggling to raise cash.
Sixty-eight per cent of the founders said they completed their last round in three months or less, and founders indicated in the survey that their number one concern right now is hiring the right people. Raising capital came in fifth in their worry list.
Instead, The pessimism towards raising more cash is likely more indicative of the moment in time right now where startups are being told to tighten their belts. Founders are bracing for a change in the market condition when it might take four months instead of three to fundraise if the cash flow to startups does indeed slow down. That market change they’re wary of may never come to fruition.
The other results that surprised Kopelman:
- Mobile, an eight-year-old industry with already established winners, was the most under-hyped technology.
- Wearables and bitcoin are the two most over-hyped.
- Despite their worries about it being harder to raise capital, founders’ top concerns were hiring the right people followed by revenue growth.
- Late-stage companies think it will take longer to IPO than early-stage companies. “I think that somewhat has to do with founder’s natural optimism. When you’re young, you think you’re going to IPO much faster than what you end up seeing,” Kopelman said.
- Enterprise companies are twice as likely to deny the bubble and twice as likely to think that their company will reach profitability in the next year than their consumer counterparts. This bullish sentiment may be related to the upcoming Atlassian IPO, an enterprise company that is going public as a profitable company.
Read the full report on the State of Startups in 2015 here.
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