Recently, there has been an uptick in newsflow around the “series A crunch”/ “the valley of death” in regards to financing. Because of who we are (a firm that connects investors with private equity investments); we at Poliwogg see a lot of the “crunched” and “valley-dwellers.” We have some good news. The good news is that we are seeing increased interest on the part of accredited investors who have not invested in private companies before and who are now more open to the idea in light of lackluster returns in other asset classes. Aggregating this group of investors allows for investments in the range that are too large for a traditional “friends and family” round but are too small for traditional institutional investors where the crunch is most pronounced. The caveat is that companies need to be ready to meet the demands of this new crop of investors. Probably, what will be required will be more stringent than what companies have been asked for in the past. On the plus side in exchange for more requirements, these investors are often more patient and more passionate (especially in the disease categories) than traditional investors.
A few observations about what we are seeing (we view mostly healthcare companies):
• Asset prices seem fairer than they have been in a while especially when compared to the prices of similar assets in the public market; spurring investor interest.
• There do seem to be a large number of companies that raised seed rounds (sometimes in substantial sizes) from friends and family. That said given the lack of arms-length transactions the supporting documentation ( e.g. possessing an accountant and law firm, audited financials) often seems a bit lacking in our view and can make a more institutional looking round challenging if not impossible. More disclosure is always better.