venture financing activity is now at an all time record, but is that good or bad?
Last week, Fintech start-up Bread announced that it had raised $126 million to help finance its growth and reach more customers. Bread offers white label financing services to help consumers afford big-ticket purchases online, such as mattresses or home appliances. The company’s fundraising will allow it to expand the number of retailers that offer financing.
Unlike other players in the space, Bread isn’t trying to build a brand, instead, it is differentiating itself by allowing retailers to offer customized financing options. The company is seeking to build a business that’s similar that of Synchrony Financial, which manages store cars for retailers – the big difference is that Bread is targeting the online market. Companies want to work with the enterprise because consumers are more likely to buy a product when they have the ability to pay later. With Bread, retailers can choose the payment terms they want to offer customers, with interest rates starting at 0% and topping out at 29.99% and repayment periods between three and 48 months.
- Q2/H1 Hedge Fund Letters – Letters, Conferences, Calls, And More
- Retail Apocalypse: The world is ordering like the Jetsons but shopping like the Flintstones
- Online shopping: Retailers seek visibility in face of Google control
- VC Investors Go Activists In Uber; Amazon’s Acquisition Of Whole Foods
Venture Financing Activity Soars
Bread’s Series B $126 million round is just the latest in what was a very successful first quarter for venture capitalists. According to law firm Cooley LLP, which specializes in venture capital fund raising and deals, during the second quarter of 2017 venture financing activity reached record levels. Cooley handled 211 disclosable deals representing more than $3.8 billion of invested capital.
The pre-money valuations of transactions increased across the board with the median pre-money valuation for Series A deals the firm worked on rising to $22 million in the quarter, the highest level recorded in the past ten years. One explanation for this increase is that with financing options available to early-stage businesses, companies are waiting much longer before going out to raise additional funds. As the business is more mature before it looks for financing, it can demand a higher valuation. “We’re seeing an increase in valuations and up rounds as the market continues to favor entrepreneurs,” said Cooley partner Matthew Bartus, co-chair of the firm’s emerging companies practice. “The abundance of seed capital in the market has allowed companies to delay raising a Series A financing until the company is in a stronger position, enabling them to raise money at higher valuations.”
Cooley notes that there has also been an increase in the number of entrepreneur-favored deals, where VC funds are asking for less for their money. This could be do to with the fact that entrepreneurs now have an increasing amount of choice of which backer they choose. A recent article from CB Insights notes that VC funds are now fighting over the next unicorn, doing “whatever it takes to catch and identify.” Two recent examples include NEA which recently raised a $2.6 billion fund and Andreessen Horowitz who raised $1.5 billion.
CB also notes that there’s an interesting "correlation" between the number of micro VC tech deals in the US and number of microbreweries.
Correlation or causation?