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It can take months of networking and negotiating to bring a VC deal together. The diligence process alone can take weeks. That’s unlikely to change in a major way any time soon.
You know what else isn’t really changing? The average amount of time companies take between raising venture rounds, worldwide, has basically stayed the same over the past decade or so. In prior Crunchbase News analysis, we aggregated the number of days between over 17,000 pairs of sequential venture capital rounds (say, a Series B and Series C) by year.
We found that worldwide average time between venture rounds has stabilized at around 2 years. But that’s a worldwide average of everything. What if we cut the numbers by industry category? Do companies in certain industries go back to the VC watering hole more quickly than in others?
It looks like it. In the chart below, the bright white line represents the global average we used in our prior analysis. The other lines represent the mean number of days between venture rounds raised by companies in a few industry categories: software as a service (SaaS), artificial intelligence and machine learning, and transportation.
Obviously, there are some companies in any industry category that can (or need to) raise more frequently, while others go several years between funding rounds. Every company is different but they each contribute to a broader industry average. Here’s what we see in the numbers.
It’s plain to see that transportation upstarts (the yellow line lowest down on the chart) raise more frequently than the global average. Whereas the world average is roughly 24 months between rounds, the average transportation startup raises a new VC round roughly every 18 months. Again, those are averages and there are outliers on both the high and low ends.
The need to raise money more often may result from capital intensity. Consider the following: Is the company building autonomous vehicle technology? That costs serious money to develop, test, and ultimately bring to market. Does the company need to buy a bazillion bikes or a fleet of electric scooters? Up-front those don’t come cheap, but then there’s the cost of maintaining and redistributing a fleet of vehicles around a city, all the time. Is the company trying to build a global multi-sided transportation marketplace that will compete ruthlessly both domestically and abroad? There’s a reason why Uber and Didi Chuxing have each raised over $20 billion via debt and equity rounds from investors the world over.
Obviously, the companies in the SaaS category are software companies. And most of the companies in Crunchbase’s artificial intelligence, machine learning, natural language processing, and related categories (which we aggregated together above) are software-based as well.
The shrinking time between rounds raised by AI, ML, and related companies around 2013 corresponds to a major uptick in venture investment in the sector where companies at the leading edge of the AI hype cycle raised subsequent rounds in fairly rapid succession. And as for SaaS, well, companies in that sector haven’t significantly deviated from global market pace by much more than a month or two in either direction over the past decade.
The fact that different types of industries carry a variegated array of capital and operational requirements is not necessarily a blockbuster revelation. It’s common sense that startups in the same industry would follow a similar pattern of fundraising to their peers, and that each peer group would differ from the other. That’s not the thing to take away here.
It’s important to remember that beyond deal and dollar volume, speed (and changes therein) is a signal of market stability. If the average time between rounds is not itself changing, not decelerating or accelerating, chances are there isn’t a seismic shift in the market afoot. When a market changes speed, pay attention to how it coasts after the invisible hand (foot?) lays off the pedals. New, giant transportation startups put a dent in their funding landscape around 2012. The software-driven sectors we covered reverted to mean.