According to research, the power dynamics in the venture capital sector are shifting away from entrepreneurs and toward investors. The data, gathered by DocSend, a tool that founders frequently use to transmit information about their firms to investors, shows that investor interest is waning following a strong start to the year, perhaps signaling the beginnings of a major shift in private-market dynamics. For the better part of the previous decade, the venture capital market has been more founder-friendly than not, a trend that appeared to climax in 2021, when a mix of private finance and a burgeoning public market created a fertile ground for businesses to raise money.
Founders were able to secure subsequent rounds of funding rapidly, frequently on favorable terms, and with minimal due diligence. Some capital allocators were more concerned about missing out on hot projects than they were about values, governance rights, and other investment parameters. It was a frenetic moment, which resulted in some firms obtaining financing at prices that are now causing problems for unicorns and other late-stage enterprises. A significant shift in the venture capital community’s founder-friendliness would upend the startup fundraising game, shifting the power balance away from those who develop and toward those who invest.
Such a correction would only be another swing of the power pendulum that Silicon Valley has long faced between VCs and startups, for those familiar with venture investing during recessions that last longer than a few weeks. Such a transition might come as a shock to founders who have been accustomed to having in-market power much beyond historical standards. Let’s look at the first quarter data from DocSend (which Dropobox purchased in 2021) to see what we can learn about how startups and the investment business are changing.
Nstacart isn’t done generating headlines yet. The well-known grocery delivery startup launched a software package as part of its self-described third act earlier this week. According to Bloomberg, Instacart’s valuation has dropped from about $39 billion to $24 billion, marking a 38.5 percent drop in the company’s value. According to the commentary, the company’s new “valuation” was determined by a 409a price shift rather than a fall in the value of preferred shares sold in the previous round. The difference here is that 409a values are established by third parties, not startups or their venture backers – Carta, for example, undertakes this work for clients – leading in a more objective pricing in certain ways. However, what we assume to be a freshly established 409a value for Instacart is significant.
