It’s no secret there has been a dramatic shift in venture capital over the last year. The market is flooded with funding, and these dynamics have changed the very definition of a growth round. A few years ago, growth financing might be defined as Series C or beyond, or a $25 million+ fundraise. According to Rashmi, those classifiers are now outdated. Some early-stage companies are now raising $50 million Series A rounds, while Series B rounds are north of $100 million. Instead of relying on traditional checkpoints, Rashmi’s milestone markers for a growth round include a clear demonstration of product-market fit, or the point at which growth capital can be infused to accelerate sales repeatability. B Capital specifically looks for companies with over $3 to $5 million in ARR. But most critically, at the growth-stage, they want to see a proven and established go-to-market engine.
So why has there been such a massive influx of capital into the market over the last 18 to 24 months? Simply put, a lot of funds have raised a lot of money. And as Rashmi shared with us, there are several new types of funds that typically would not play in the growth equity markets, including hedge funds, crossover funds, and direct investments from LPs. Many of these larger funds are joining earlier stage financing rounds, too. And it’s more common to see late-stage firms participate in Series A and Series B rounds as well.
These funds are typically entering the venture growth market with a public equity software index strategy. They take positions across many companies, occasionally even competitors, and their diligence process is comparatively short. Given the smaller check sizes relative to total AUM, larger funds can move fast, and growth-stage deal timelines have reduced considerably as a result. In the past, it would take a month or two to go through a full diligence process for a growth deal. Now, that has shifted to literally days—maybe a week or two at most.