Interview, Fireside Chat
How Dire is the Startup Funding Market Today? | AngelList CEO Avlok Kohli
- AngelList currently supports 20,000 funds and syndicates, managing a portfolio of over 13,000 startups, granting deep visibility into deal flow, cap tables, and follow-on documentation.
- The platform tracks quarterly "Boom Times and Bad Times" metrics, plotting investment activity rates against the percentage of positive (up) rounds to identify market phases.
- Current market conditions have shifted from the top-right quadrant (high volume, high up-rounds) seen in early 2022 to the bottom-left quadrant, representing the most severe "bad times" in the firm's tracked history.
- The contraction from peak boom times to current depths is the fastest and largest distance ever recorded between high and low activity points in the data.
- While pre-seed and seed valuations remain relatively stable due to an influx of capital from later-stage investors moving earlier, Series A, B, and C rounds face significant compression.
- Series B deal volume is down more than 50%, with valuations also declining by over 50%, while Series C transactions have become virtually non-existent.
- Early-stage valuations are propped up by principals and associates at multi-stage funds writing checks on behalf of partners who are underwater on board positions, creating a less price-sensitive capital environment.
- Adverse selection is prevalent in the Series A market, where strong companies are preempted by existing insiders, leaving weaker companies to raise without outside leads.
- Data indicates that only companies with credible traction are successfully raising capital; the capital markets are effectively shut down for startups lacking such traction.
- The proportion of "party rounds" (no single investor writing more than 40% of the check) relative to non-party rounds remains stable, but overall volume has contracted, eliminating the ability for companies to raise successive small "C, C+, C++" rounds.
- Raising a seed round of $2 million can still occur via a party round, but raising $5 million without a lead is significantly more difficult.
- The time required to raise a pre-seed or seed round has increased by 33% compared to historical averages dating back to 2015, indicating a market freeze.
- Founders are adjusting to brutal valuation realities, with pricing expectations dropping from metrics like 200x ARR to 10x or 20x ARR.
- Flat and down rounds (pay-to-play) increased in Q1 with 48 observed transactions, a tick up from Q3 and Q4, though the firm attributes the delay in repricing to startups extending cash runways via layoffs rather than immediate market clearing.
- The firm expects repricing and down rounds to accelerate in Q2, Q3, and Q4 as startups with extended runways eventually hit cash walls.
- A spree of rapid M&A is not anticipated due to public companies facing pressure from investors regarding stock-based compensation dilution and private acquirers facing integration costs and pricing alignment challenges.
- AngelList's own M&A data confirms a significant decline in transaction volume, with the firm predicting this trend will persist for the next six to 18 months unless macro conditions improve.
- Venture investment faces downward pressure from higher interest rates for longer, as risk-free assets (e.g., US Treasuries yielding 5%) compete directly with high-risk venture allocations.
- There is a growing appetite among LPs to sell fund positions, driven by liquidity crunches or the need to correct investment ratios, with deals occurring at discounts of 20% to 50% below the last round mark.
- While some secondary data shows discounts up to 70%, the clearing prices observed by AngelList for name-brand companies are typically in the 20% to 50% range.
- LP commitments to rolling funds remain relatively resilient, dropping only ~20%, whereas commitments to traditional venture funds from individuals have fallen 60% from early 2022 peaks.
- Institutional LPs (family offices and true institutions) have recently seen their commitments to venture funds recover, a trend attributed to increased macro certainty and the AI technology cycle.
- Net new fund formation is down significantly, and the time to reach a "first close" has extended from three months during the boom to six or seven months currently.
- Fund sizes, particularly for first-time managers, are shrinking; the standard $5 million first fund is now being targeted closer to $1 million to $3 million.
- AngelList is leveraging large language models (LLMs) to automate workflows that previously required human judgment, such as routing 15,000 weekly emails and automatically tagging legal documents.
- The firm's AI initiatives utilize five to six years of accumulated training data to identify missing documents (e.g., cap tables) and automatically request them from investors, replacing manual review processes.