Sentiment is important when it comes to fundraising. If you’re a daily deal company or a social gaming company right now, while not impossible to raise money, it’s safe to say that the trend is not your friend. And right now, the sentiment is shifting consumer to enterprise — or if you’re feeling nostalgic B2C vs B2B.
The Seed Investing – Series A Crunch Report calculated that over 1000 startups would be orphaned or die in the near future due to a lack of follow-on financing. Since industry or market momentum plays a role in investment decisions, we wanted to take a look at which markets might be better positioned to withstand the crunch by virtue of their companies being focused on areas that are en vogue right now. Yes – rising tides lift all ships and all that good stuff.
First, a high-level breakdown of Seed VC companies between B2B and B2C is given below. While tech normally includes computer hardware and chips & semis they’ve been eliminated to focus on software-oriented companies where the B2B vs. B2C breakdown is more relevant.
Focusing specifically on software-oriented startups, B2C companies only slightly edged out B2B companies for seed funding at a national level. However, at the state level (below), the differences in composition become more stark.
The state by state breakdown shows California and New York each having a greater composition of B2C startups than other markets. In fact, NY is the only state with more than 60% of its seeded companies being consumer-oriented. Massachusetts which rounds out the Big 3 of VC follows the national average in its B2C vs B2B composition.
Given the importance of market sentiment in raising financing, it appears likely that more seed-funded companies in California and NY will encounter difficulties while fundraising given both geographies have a greater contingent of now out-of-favor B2C startups.
- Great companies with great metrics and great teams will always find funding irrespective of industry, geography, etc. This is not news. But for the companies who are not proverbially “crushing it”, being situated in the right industry can help get you the nod over a company in an out of favor industry.
- Investing in consumer-oriented applications is not dead or over. There are still many financings to consumer companies but the pace has slipped. And the shift is not one just of sentiment. Investors are also voting with their wallets. Below are a couple of heatmaps from Industry Analytics showing the internet software & services sector over two 5-quarter periods. The intensity of the blue represents the amount of funding and the size of each rectangle represents the number of financing deals.
A view of the heatmap from Q4 2007 to Q4 2008 shows the prominence of social and gaming company deals and funding.