Fundraising cycles grow longer while investors plow through pitch decks

Dropbox DocSend, a secure document sharing platform and part of Dropbox, today released data revealing that investors spent an increased amount of time on the competition and "why now?" sections of seed decks despite spending 20% less time reviewing pitch decks year-over-year (YoY). Investors are scrutinizing key differentiators in a crowded yet disruptive marketplace while founders attempt to demonstrate definitive success metrics and need for urgency.

In its annual report, The seed round in 2022-23: No time like the present? VCs, founders focus on "why now?" amid ongoing slowdown, DocSend analyzed 170 seed startup pitch decks to gather insights on successful and unsuccessful pitch deck composition. Through the analysis, DocSend is able to better understand the nuances of current investor behavior in the last half of 2022 and first half of 2023.

Seed funding was down 27% YoY in Q3 2023, despite optimism about disruptive technology like artificial intelligence (AI). This sustained downturn in funding signals the seed stage is losing its resilience as market conditions worsen. To succeed in an investors' market, seed stage founders need to portray why now is the time to invest for long-term success against competitors.

The Importance of Now, and Later

Founders need to clearly communicate why their company is a good investment right now, even in a tough market, with a 65% increase in VC time spent reviewing the "Why Now?" section of pitch decks.

While founders need to demonstrate the short-term importance of an investment, they are expected to simultaneously display a solid path to success and profitability for the long-term. A strong product and business model slide should be polished and easy to digest, with review times on these deck sections dropping by 10% and 2%, respectively.

"Investors found comfort in the uncomfortable market and don't mind saying 'no' to deals," said Justin Izzo, senior research and data lead at Dropbox DocSend. "In order for seed-stage founders to succeed today, they need to clearly communicate two timelines: their product in the current market and its longevity. Founders need to communicate a sense of urgency with a compelling 'why'."

Competition Heats Up

While the seed stage is typically a time for focusing on internal growth as opposed to external factors, investors are paying closer attention to how startups stack up against their competition earlier in fundraising stages. Investors spent 88% more time on the competition section of successful pitch decks, demonstrating VCs are looking further ahead at potential external roadblocks that could interfere with their investment.

Artificial intelligence (AI) has shown charted growth in funding over the past year. AI related seed pitch decks jumped 48% YoY, emphasizing that even in sectors that are attracting investor attention, dense market competition crowds VC interest. On the other hand, healthcare technology funding has underperformed in years prior, but the industry is gaining technological momentum as decks created climbed 30% YoY.

However, competition for VC funding is becoming more dispersed throughout the United States as founders experience success away from the typical startup hubs. Seed-stage startups in the Western United States dropped 12%, while the Southern United States and Northeastern United States each increased 6%.

Less Time to Make an Impact

Overall, VC time spent reviewing pitch decks at the seed stage dropped 27% for unsuccessful pitch decks YoY, and 12% for successful decks. This difference confirms investors are content walking away from a deal after a quick first glance. Unsuccessful pitch decks saw a 28% drop in time spent on subsequent visits YoY, as investors are quick to confirm their doubts in a pitch deck.

Conversely, founders are spending significantly more time fundraising at the seed stage compared to years past. Some of this increase can be attributed to a worse success rate in securing meetings with investors — the average number of investors contacted is 66 in 2023, up from 48 in 2022, but the average meetings set is down to 38 per startup team, compared to 56 in 2022. With 50% of successful raises taking 13 to 24 weeks in 2023, compared to only 46% of successful raises taking one to 12 weeks in 2022, fundraising has become a more time-consuming and rigorous process than years prior.