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What Q2 fundraising data tells us about the rest of 2020

It’s safe to say that no one could have predicted how this year’s fundraising marketplace was going to shape up. The beginning of the year saw us trending toward a blockbuster start, similar to 2018, rather than the steady burn of 2019. But after March there was no clear road map for how VCs and founders were going to react.

We’ve been tracking three key data metrics from the 2020 DocSend Startup Index to show us real-time trends in the fundraising marketplace. Using aggregate and anonymous data pulled from thousands of pitch deck interactions across the DocSend platform, we’re able to track the supply and demand in the marketplace, as well as the quality of pitch deck interactions.

The main two metrics are Pitch Deck Interest and Founder Links Created. These are leading indicators for how the fundraising marketplace is shaping up as it measures the activity happening around the pitch deck. As that interest peaks, we expect the amount of funds deployed to increase in the months after. Pitch Deck Interest is measured by the average number of pitch deck interactions for each founder happening on our platform per week, and is a great proxy for demand.

Founder Links Created is how many unique links a founder is creating to their deck each week; because each person you send a document to in DocSend gets a unique link, we can use this as a proxy for supply by looking at how many investors a founder is sharing their deck with per week.

Here’s what we saw in Q2 and how that will affect the rest of the year.

VCs are shopping

VC interest has been at an all-time high over the last quarter. Interest rebounded over the course of a few weeks after the pandemic was declared and shelter-in-place orders were given. But once interest rebounded to pre-pandemic levels it did something surprising. It kept climbing. In fact, the top 10 weeks for VC interest this year were all in Q2. Overall, interest was up 21.6% QoQ and 26% YoY. This means we’re looking at VCs viewing more pitch decks than they have any time in the last two years.

This is in spite of VC interest traditionally declining from late spring into summer, before bottoming out during the last two weeks of August. After the initial peak in the spring, VC interest typically doesn’t rebound until October.

But not only can we see that VCs are interacting with a lot of decks, we also can determine the quality of those interactions. We measure how long a VC spends reading each deck. From our previous research we know that the average pitch deck interaction is less than 3.5 minutes. But the amount of time VCs spent reading each deck in Q2 steadily declined, going below two minutes toward the end of the quarter. This tells us VCs are speeding through decks. That means they either know what they’re looking for and aren’t wasting time, or they’re scrutinizing decks less, opting for a Zoom call to hear more from a founder.

For founders, this means having a tight deck is even more important than before. Don’t have more than 20 slides, don’t send your appendix in your send-ahead deck and keep your slides concise and thoughtful (read our guide on how to put together a send-ahead deck here).

If you’re still not able to get a meeting with a VC during this intense shopping season, you may want to consider changing your fundraising strategy.

Founder timelines have changed

We can see over the last quarter that there have been clear spikes in the amount of links founders are sending out. Founders sent out 11% more deck links in Q2 than they did in Q1, but what’s interesting is that the number of links created actually dropped below 2019 levels on three separate occasions. So while founders might have been rushing to send their deck out during unstable times, there were plenty of weeks where founders were hanging back.

This conflicting story can tell us several things. First, founders have most likely condensed their fundraising efforts. According to our research earlier this year, the average pre-seed round takes longer than three months to complete. For those fundraising during a pandemic, three months can seem like a lifetime. This is not only due to the logistics of setting meetings with VCs who have packed calendars, but also the iteration process of receiving feedback from a potential investor, working on your deck, then sending it out to new targets. With global uncertainty, many founders likely decided to shorten their time away from their business by reducing their fundraising efforts to just a few weeks.

Second, due to aggressive cost cutting at the beginning of the pandemic, many founders found themselves with more runway than they expected. In fact, according to a recent survey we did, nearly 50% of founders changed their fundraising timeline by either moving it forward or delaying it. Founders that could afford to decided to avoid the volatile fundraising marketplace in an effort to preserve their valuations.

We’re looking at more than displaced interest from March

While it was easy during April and early May to think the fundraising marketplace was experiencing delayed activity due to the crash in March, the sustained interest makes it hard to believe that’s still the case, especially taking into account seasonality. The last week of the quarter saw a 37% increase in interest over 2019 and an 18% increase over 2018. With that level of activity, we’ve clearly entered a new normal for fundraising.

While valuations might be fluctuating, it’s quite clear VCs are shopping. To figure out why, you don’t have to look any further than the 2008 financial crisis. The businesses born out of crises tend to address real, systemic problems that require big, bold fixes. And the pandemic has certainly laid bare many societal issues that are worth addressing.

What Q3 and Q4 could look like based on current trends

If it’s clear that VCs are shopping, and it’s clear that this isn’t displaced interest from earlier this year, what does that mean for the future? We would normally see an increase in founder activity starting in late summer, leading to peak VC interest in the fall. Founder activity has been up and down, and VC interest has been steadily rising, which tells us there’s still pent-up demand to deploy capital. We should also see many founders who delayed their fundraising efforts enter the marketplace in the next few months. If pandemic conditions worsen, we might also see founders who had decided to push their fundraising efforts to next year moving their timelines forward.

If the current level of interest represents the new normal for VCs, we expect it to only increase as we enter the fall. And with more founders coming online in early to late fall, that pent-up demand should result in an increasingly active market. If you’re a founder, I would recommend kicking off your fundraise now in order to capitalize on the increased interest from investors and decreased competition for at least the first pitch meeting.

Q3 2020 is primed to be an intense shopping season for VCs

With the high possibility of an extremely active fundraising marketplace for the rest of the year, founders need to know how to take advantage of it. As you can see from the DocSend Pitch Deck Interest Metrics, spikes in the marketplace previously have resulted in some pretty specific behaviors by VCs.

Here are some tips on how to use the increasing levels of VC interest to your advantage.

VCs are spending less time on your deck, so get to the point

We’re seeing record low time spent per pitch deck. We know from previous research that VCs spend on average 3.5 minutes per pitch deck. But over the last quarter that time has dipped below three minutes. That can actually be a good and a bad thing. It implies that VCs are streamlining their process of looking at decks, which means they most likely know what they want. The downside of this is if you break a few cardinal rules right now your deck could end up in the reject pile.

From our research, VCs expect a deck to be around 20 pages. They expect a straightforward narrative that starts with your problem, leading to the solution, and then your product and business model. Our data found that VCs respond best to 35-50 words per slide (too few words per slide is also an issue; you want to offer enough context for your deck to make sense without you presenting it). The only place you can increase your word count is on your Team page. Our data shows the average number of words on a successful Team slide is 80. This gives you room to highlight the founding team’s relevant experience and show how you’re uniquely suited to build your business.

You have to include a “why now” slide and it should mention COVID-19

We already know that investors respond well to a Why Now slide. Our research shows that 54% of successful pitch decks included a Why Now slide, where only 38% of failed decks included it. That slide now has to work twice as hard. We’re hearing from investors that they expect to see information in your pitch deck about how your business has been affected by COVID-19 and how you plan to manage that impact moving forward. Even if the pandemic has had no material effect on your business, the investor will still have the question. Get out in front of it with a well-formed response near the beginning of your deck.

Magnetis raises $11 million for its automated wealth management and brokerage service for Brazil

Magnetis, an automated wealth management solution for Brazilian investors, has raised $11 million in a new round of funding as it transforms itself into a full service brokerage for the nation’s investor class.

Investors in the round included Redpoint eventures and Vostok Emerging Finance, the company said.

“We’re quite happy with this vote of confidence from our investors. It only reinforces the credibility of our service and business model, which uses technology for goal-based investment management, without creating a conflict of interest,” said Luciano Tavares, founder and CEO of Magnetis. “The new funding will be used to launch our own brokerage and to develop new functionalities that improve customer experience and provide a complete and curated journey through goal-based investments.”

First launched five years ago, the company has set up 350,000 investment plans and has more than 430 million reals under management, according to a statement from the company.

The company said it planned to hit more than 1 billion reals by the end of 2021.

“Today, the Brazilian market is more sophisticated, with a sharp drop in a dependence on fixed income and a rise in more financial assets, including funds, shares, commodities and fixed-income securities. Defining a personal investment portfolio is a science, not a game or lottery,” said Anderson Thees, founder and managing partner of Redpoint eventures, in a statement. “Magnetis’ great differentiator is its ability to set up a personalized investment plan, with first-rate assets and its use of AI to manage all the variables in a sophisticated way. Magnetis is well-positioned for accelerated growth and our team at Redpoint is excited about guiding them during this new phase of our partnership as the fintech sector continues to boom in Brazil and beyond.”

Fintech in Latin America is a booming investment category, with companies like Nubank skyrocketing to multi-billion dollar valuations, and accounting for 22 percent of all Latin American fintech startups.

As the company closes on the new financing, it’s also launching a brokerage, which will enable the company to do more for its customers, according to Tavares. It may also allow the company to keep more money for itself since it doesn’t have to work with outside parties to execute trades.

“Our model for digital assets management and wealth creation is much more complete and sophisticated. The vision is to be a financial guide for our clients; making their investment experience simpler,” Tavares said in a statement. “A total integration with the broker makes the client’s journey simpler, more consolidated and complete.”

Tavares and Magnetis is also making a commitment to transparency around fees.

“We do not receive commissions on the products we recommend to customers,” said Tavares, in a statement. “The asset selection process is done in a transparent and automated way, and customers pay us an annual consulting fee based only on the amount they invest, and not according to the recommended investments. The end result is the selection of high quality products that are more aligned with the clients’ objectives.”