In February 2013, Snapchat raised a $13.5 Series A round from Benchmark Capital. Just four months later, Snapchat took a $60M Series B round led by Institutional Venture Partners. And just six months after that, the ephemeral messaging startup took a $50M financing round, this time from tech hedge fund Coatue Management.
Snapchat’s case got us wondering: are more tech companies raising more money at a faster clip?
According to CB Insights data, the number of tech companies raising multiple double-digit financing rounds within 12 months of each other has indeed seen a notable increase over the past five years.
As the chart below highlights, there were 34 tech companies that raised a $10M+ funding round in 2009 and also raised another $10M+ financing within the 12 months prior to that respective round. That figure jumped 168% by 2013, when just over 90 tech firms raised multiple double-digit rounds within 12 months of each other including Nextdoor, Pinterest, Okta and Lyft (which is rumored to be in the process of raising another large round).
The more interesting question becomes what is driving this phenomena. Some things we’ve heard from VCs and founders:
- Easy money so get it because you can – The general media narrative when the founders of these companies are asked why they raised multiple large rounds in quick succession is that they didn’t need the money but got it on good terms so decided to take it.
- Things are frothy and the money might not be there in 6 months – From the bird in hand school of fundraising, some entrepreneurs think the good times could come to an end soon and so they are raising preemptively given this possibility so they have a sufficient resources for a future “rainy day”.
- Inorganic growth – Given the rise of acqui-hires, having some extra cash lying around can be helpful so we can pick up good teams building bad companies to help accelerate growth.
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