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10 Venture Capital Firms Investing in Early-Stage Startups

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Jonathan Selby - Founder Shield
Jonathan Selby

General Manager

CB Insights reported that global funding for startups dropped by almost 25% between Q1 and Q2 2022 — and the reasons for this are endless. Inflation. Geopolitical instability. Crypto collapse. Likely recession. These factors are all shifting the landscape of early-stage startups and investors. So, which venture capital (VC) firms should you watch out for?

A Deep Dive Into the Early-Stage Investing Landscape 

There’s been a pull-back on funding, and investors have turned away from companies heavily reliant on capital to stay afloat. Some investors have even stuck their heads in the sand and avoided investing entirely. Furthermore, early-stage startups now face more scrutiny from investors, with sustainable, long-term growth potential being more crucial than ever. 

But why? For starters, the Federal Reserve implemented interest rate hikes to help tackle inflation. As a result, money is expensive to borrow, meaning reduced liquidity and less money for investments. High inflation and tighter monetary policy also affected crypto markets, which are in turmoil after the market collapse in the summer of 2022. Bitcoin (BTC) has been down more than 17% recently, and Ethereum (ETH) nearly 18%.

Sequoia Capital warned founders that they shouldn’t expect a quick market recovery — it’s time to cut costs. However, at the same time, some of the most successful startups were founded during recessions, including Microsoft, Airbnb, Slack, Uber, Instagram, and others. This time, the winners will be those able to face head-on the challenges that “may have been masked during the exuberance and distortions of free capital over the past two years.”

Early-stage investors are more demanding now, but late-stage companies are even more affected. Startups must remember: If VC funds adopt a particularly harsh approach toward late-stage investments, that could trigger a shift to growth startups with smaller deal sizes. 

A Deep Dive Into the Early-Stage Investing Landscape
There’s been a pull-back on funding, and investors have turned away from companies heavily reliant on capital to stay afloat. Some investors have even stuck their heads in the sand and avoided investing entirely. Furthermore, early-stage startups now face more scrutiny from investors, with sustainable, long-term growth potential being more crucial than ever.

But why? For starters, the Federal Reserve implemented interest rate hikes to help tackle inflation. As a result, money is expensive to borrow, meaning reduced liquidity and less money for investments. High inflation and tighter monetary policy also affected crypto markets, which are in turmoil after the market collapse in the summer of 2022. Bitcoin (BTC) has been down more than 17% recently, and Ethereum (ETH) nearly 18%.

Sequoia Capital warned founders that they shouldn’t expect a quick market recovery — it’s time to cut costs. However, at the same time, some of the most successful startups were founded during recessions, including Microsoft, Airbnb, Slack, Uber, Instagram, and others. This time, the winners will be those able to face head-on the challenges that “may have been masked during the exuberance and distortions of free capital over the past two years.”

Early-stage investors are more demanding now, but late-stage companies are even more affected. Startups must remember: If VC funds adopt a particularly harsh approach toward late-stage investments, that could trigger a shift to growth startups with smaller deal sizes.

There is a funder for every solid company — even during the darkest days. It’s easy when everyone can access investment, but during more uncertain times, you should consider which kind of company you are and test the waters by talking to VCs with dry powder. Insurance venture capital firms, which specialize in funding companies within the insurance sector, can be particularly valuable during these times. Here’s a list of some of the top early-stage investors.

Top 10 Early-Stage Investors for Startups

1. Arch Venture Partners 

Arch Venture Partners invests in early-stage healthcare and life science companies to discover, treat, and cure some of the biggest health challenges, from infectious diseases to mental health. Since the VC firm’s creation, it has managed 12 investment funds, allowing for 432 investments in growing businesses. This year, they announced a $2.975 billion fund for early-stage biotech companies, “Science doesn’t care what markets are doing, and science moves forward.”  

2. GGV Capital

GGV started in 2000 and has made over 866 investments in companies transforming existing markets through technology innovation. They have raised a total of $7.8 billion across 19 different funds. This year, they made the list of the top ten VC firms in the world, with some of their most notable exits, including Affirm and Hootsuite. 

3. Lightspeed Venture Partners 

Lightspeed has backed 400 companies since 1999. And they now rank number seven out of ten VC companies in the world. Many reputable businesses make up its portfolio, including Eleementor and Snapchat. They are passionate about offering opportunities for early-stage startups at challenging times. For example, in April 2020, amid the Coronavirus pandemic, Lightspeed raised $4 billion for the startup landscape. They are also educating founders about how “the boom times of the last decade are unambiguously over.”  

4. Menlo Ventures

Menlo Ventures is one of the oldest VC firms in Silicon Valley, focusing on consumer and enterprise companies as well as healthtech and robotics. They have invested in Uber and Siri, empowered hundreds of companies through their 255 lead investments, and had over 160 exits.

5. New Enterprise Associates (NEA) 

NEA is an early-stage VC firm on a mission to better the world through startup investment, especially in the technology and healthcare industries. With over $25 billion in committed capital and over 2000 investments, NEA is dedicated to funding companies poised for significant growth, like Robinhood and Cloudflare.   

6. Sequoia Capital 

Sequoia Capital is an American VC firm interested in funding for tech startups, healthcare, and high growth. The firm has been in business since 1972 and was among the early investors in major Silicon Valley companies. They now boast tech giants Google, Apple, and Whatsapp as their successful alumni. Sequoia has joined the many VC firms and investors warning founders about the current macroeconomic crisis and encouraging them to get ahead of the game. 

7. Vamos Ventures 

Vamos Ventures is an absolute newcomer to the early-stage investment scene. Although it was founded in 2020, the American VC firm has managed 24 diversity investments. They focus on providing opportunities to Latinx founders and other minority founders. Since funding for US-based Latine-founded companies dropped by more than 80% in Q3 of 2022, the firm will be crucial to getting the ecosystem back on track. 

8. York IE

York IE is a strategic growth and investment firm focused on early-stage startups in the B2B, subscription, and SaaS sectors. The company has made 40 investments so far and is dedicated to disrupting how traditional VC investments are made. They look to strategically guide ambitious founders and encourage sustainable scaling, which is vital during economic uncertainty. 

9. Accel

Across all stages, from seed to growth, Accel is among the top VC firms that support early-stage startups. According to its most substantial investments — Dropbox, Slack, and Facebook — Accel works best with tech startups. Across the globe, the VC firm manages an astounding $3 billion in investments.  

10. Benchmark

Benchmark is a VC firm that’s been around for roughly 30 years, founded in 1995, supporting early-stage startups with high-growth opportunities. This VC firm specializes in infrastructure and enterprise software startups and doesn’t shy away from early-stage investments. With more than $9 billion in total assets, Benchmark has invested in popular household names like Uber, Snapchat, and Tinder. 

Overall, adequate planning and preparation before going for the next round of funding will pay off in the long haul. In other words, review your Employment Practices Liability (EPL) and Directors & Officers (D&O) insurance policies. At Founder Shield, we specialize in knowing your industry’s risks and seek to make sure you have adequate protection. Reach out to us, and we’ll walk you through the process of finding the right policy for you.

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