Maintaining Discipline in a Bull Market with Augustin Sayer

According to a recent report from Pitchbook, 2021 has already shattered yearly records for startup funding. As of September 30, U.S. startups raised roughly $240 billion. That’s a major increase from 2020’s full-year total of $166 billion. Exit values for 2021 passed $582 billion, more than twice 2020’s record figure.

With all that money floating around, it can be easy to lose your head. But according to venture capitalist Augustin Sayer, a bull market is the wrong time to lose your discipline.

“The number one trap I see in a bull market is forgetting fundamentals,” Sayer says. “It’s very easy to forget fundamentals when everyone is getting funds raised. But when the music stops, if you don’t have fundamentals you die.”

Sayer is a partner at Newfund Capital, a transatlantic VC fund with offices in Paris and San Francisco that specializes in seed-stage funding. On Jan. 11, 2022, Sayer hosted a webinar for Founders Network members and provided the pitfalls of raising seed funding in a bull market and how founders can raise capital without getting in over their head. 

To learn more about the pitfalls of raising seed funding in a bull market, see if you qualify for membership and check out the webinar from January 11.

Higher rounds, higher valuations

Raising funds in a bull market means different things for different funding rounds. However, overall Sayer is seeing higher rounds and higher valuations. 

“It’s affecting the money available to invest worldwide,” Sayer says. “That creates inflation of the fundraising round and creates inflation of valuations. Nowadays entrepreneurs can raise more money than two or three years ago because there’s more money available.”

It’s an entrepreneur’s market. As a result, Sayer says startups are able to raise more money on achievements that don’t always warrant the valuation they’re receiving.

“It probably doesn’t help me as an investor because we don’t want startups to raise too much money,” Sayer says. “More money doesn’t make you smarter. You end up wasting a lot more money because your mistakes are a lot more costly.” 

How much is too much?

While it might be tempting to throw caution to the wind, Sayer says caution is key to long term startup success. He says it’s better to be oversubscribed than undersubscribed. That’s why he recommends starting your seed round with a fair amount. Then founders  can increase their round if there is more interest than originally predicted. 

“Essentially, if you have ten companies at the seed level, six are going to raise a series A, three are going to raise a growth round, and only one is going to IPO,” Sayer says. “There’s a lot of money but there are still a lot more startups at the beginning than end up at the finish line.”

Still, he’s not saying founders shouldn’t be taking advantage of the market. 

“Two years ago, if someone was raising a $2 million seed round and got offered a $4 million seed round, I would have said no,” Sayer says. “But, with the bull market these days, what I’ve started to realize is if it’s not you raising the $4 million, it’s going to go to your competitors.” 

Finding the right fit

Despite the bull market, Sayer says it’s important for founders to carefully consider the investors they choose. While higher figures might be attractive, he says ultimately having a good fit with your investors can be more important.  

“It’s fine to get more money. But get money from someone you have a good fit with, especially at the seed level,” Sayer says. “The seed level is when the funds can have the highest impact in terms of turning the company into a Series A potential company. You really need a fund that’s going to be dedicated to helping you, who’s going to spend time with you, and who’s going to connect you with potential clients.

“The problem with those funds who love to spray and pray is they’re spraying so much they don’t have time to spend with you.”

The double-edged sword of VC scouts 

VC scouts are a hotly debated topic in the startup community. They are essentially startup operators and entrepreneurs who work with VC firms to create more dealflow opportunities. VC scouts have been given the power to invest money in startups on behalf of a VC firm and are given full-decision making authority.

According to Sayer, VC scouts were popular last year but have been waning in recent months. Sayer acknowledges the benefits VC scouts can bring. However, he says working with them is a balancing act. While VC scouts can serve as leverage for the Series A funding round, he says there are no guarantees. 

“The fact that the scout invests in your company does not mean the underlying fund has any remote interest in funding the next round. It’s a double-edged sword because if they don’t invest in the next round, it looks bad,” Sayer says. “If you have a VC scout investing in your seed round he’s definitely going to attract a lot of business angels. So it’s probably going to be easier to raise a round with other business angels, and you’re going to make your lead seed fund feel more comfortable.”

Ultimately, Sayer says he recommends going with the more traditional funding route.  

“VC scouts are great if you want to raise a round with only business angels,” Sayer says. “But if you think your business is up to the standard of a proper VC fundraising round with a tier-one VC fund, go with the tier-one VC fund.” 

Want to learn more about raising seed funds in a bull market? See if you qualify for membership to attend Sayer’s webinar on Jan. 11, 2022. Sayer’s webinar covered:

• How the bull market affects different stages of funding
• Whether startups should increase seed funding during a bull market
• What traps entrepreneurs should be aware of during bull markets
• What founders should know about VC scouts in the current market

To learn more about the pitfalls of raising seed funding in a bull market, see if you qualify for membership and check out the webinar from January 11.