A guest post by Federico Wengi (@federicowengi) from Paua Ventures (@pauaventures). This is the first post of a series covering the German and European VC industry by numbers.
We really like to invest in Germany and in particular in Berlin. In our 2 funds we invested in many German companies like Amorelie, Flaconi, Lesara, KIWI, Debitos, Flip4new, Justbook and others. So for us, among many other things, it is important to understand what is going in Germany. Since we invest mostly in Seed and Series A rounds I wanted to investigate these rounds and their relationships.
With that in mind I got my hands on the complete Crunchbase data set and crunched some numbers. My analysis relies mostly, as I said, on Crunchbase data so be aware of all the limitations of a free, open source database. The data comprise any VC, Accelerators and Business Angels back deal. All monetary values are in USD.
I will lay out my analysis in a Q&A manner in which I will use the data to answer questions that I find interesting
How many VC rounds in Germany per quarter?
Approximately 100 VC rounds per quarter happen in Germany these days. That means 1.5 per working day. Clearly these numbers accelerated pretty fast in the last 3 years, in 2011 you had ~50 VC rounds per quarter or 0.8 per working day.
What rounds do VCs finance ? How is it evolving ?
As one might expect, the majority of rounds are Seed. In 2015–2016 you can roughly expect 40 Seed rounds per quarter, 15 Series A, 10 Series B and 5 Series C. Clearly Seed funding is booming in Germany. Many have written about the abundance of early stage capital in Berlin and clearly the data show it. The dip in Q4 Seed financing could be explained by tech stocks crushing and investors maybe getting more sensitive on the riskiest asset class.
How big are rounds in Germany and are they getting bigger? And what is the “war chest syndrome”?
Disclaimer: data in charts are in USD and show averages. Outliers are distorting the true values (see below for the medians that partially correct for outliers). Regadless of this, data can still tell a lot regarding trends.
In the table on the right you can find the median values for Seed, A and B rounds (2011–2015). Looking at the charts Seed and Series B sizes are on the rise. In 2011 you saw average Seed deals of USD 500k while in 2016 the average more than doubled. A similar pattern can be observed in Series B averages. Series A is a strange beast. First of all let me point out that the USD 10m average in Q3 2012 is driven only by the USD 90m Wimdu Series A. But still even if you ignore that quarter, you just don´t observe a ramp up in size. In my opinion there is a bias that distorts value upwards, that is: if you raise a tiny series A you might not want to disclose it on Crunchbase to not look weak in the eyes of competitors. On the other hand if you raised a big round you are probably publishing it to scare competitors off and to attract top talents to your company. Let me call this phenomenon the “war chest syndrome”. I suspect that the war chest syndrome was more acute in 2011–2013 than in 2015–2016 but I have no data about it since I believe that nobody looked at data to investigate it. So I got back at my raw data and looked at how many Series A were published vs how many were published with undisclosed amounts.
If you are not familiar with Crunchbase see two examples of a round with published amount vs one with undisclosed amount below:
Nice! It works. Data back my gut feeling. In 2012 ~55% of Series A rounds were published without the amount raised while in 2016 only ~27% of Series A rounds are published without a precise amount. So assuming that on average companies do not disclose Series A below average rather than above average we can argue that in 2011–2013 the true Series A value should be smaller than in 2015–2016. While this is no mathematical proof I believe that it can give an indication that the true value of Series A did increase in time and data are biased because of the war chest syndrome.
Disclaimer. Original post appeared here on Medium.