Increasing capital in VC industry gives founders an edge in dealmaking

Increasing capital in VC industry gives founders an edge in dealmaking

The supply of capital in the VC industry is increasing rapidly, helping startup founders push their preferences in term sheet negotiations.

After several years of shrinking, the capital supply-and-demand ratio changed over the last few quarters of 2021, coinciding with robust VC fundraising activity in 2020 and 2021, according to the latest PitchBook VC Quantitative Perspectives report.

“When we see an increase in capital available to startups relative to what we estimate they demand, we expect startups to have more leverage at the negotiating table,” said Alex Warfel, an emerging tech analyst at PitchBook.

 

This means that more dollars are available to startups for every dollar demanded—giving them more options when searching for capital, working with partners and potentially finding attractive deal terms, all else being equal.

“This additional leverage gained in 2021 from fundraising activity has buoyed the longer-term, 10-year trend of startup friendliness in VC dealmaking, which has left some investors unprotected from downside risk,” Warfel said.

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