Startup founders think the balance of power will shift back towards investors in 2020, but some VCs say they aren't so sure

• A study conducted by First Round Capital, a prominent early stage venture firm in Silicon Valley, found that 70% of startup founders predict that investors will be calling the shots for venture deals in 2020.
• That would be a marked turnaround from recent years, where venture capitalists strive to appear "founder-friendly" in a market where investors have to compete to win the chance to invest in the hottest startups.
• The same study also found that 65% of founders anticipate having more difficulty raising funding in 2020.
• Investors disagree, with many raising billion-dollar funds in 2019 just to keep pace with the increasingly aggressive and competitive venture funding ecosystem.
• Many investors told Business Insider that they anticipate founders will remain in control of funding deals in 2020 as the competitive landscape only gets broader at every stage.
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A decade marked by rapidly rising valuations and "founder-friendly" funding rounds is coming to a close, and founders are already starting to fret that the good old days are behind them.

According to a new study from First Round Capital, a prominent early stage venture capital firm in Silicon Valley, upwards of 70% of polled startup founders think that investors will overtake founders as the controlling parties in venture deals in 2020. The study also found that 65% of founders anticipate having more difficulty raising funding in the new year.

But VCs see the landscape differently, as founders at hot startups have their pick of would-be investors to bring into the fold. It's never been easier to raise venture funding than the last 12 months, several investors have told Business Insider, and the terms of each deal are almost always more favorable to the founder.

"At the end of the day, no matter how many investors there are, companies still want to work with the best investors," Sapphire Ventures Managing Director Nino Marakovic told Business Insider.

Becoming the best investor, however, means that firms are raising larger and larger funds to offer founders a bigger check at higher valuations - a process that was upended with SoftBank's $100 billion Vision Fund swept through Silicon Valley with nine-figure checks and even bigger valuations. Just Wednesday, Sapphire Ventures announced its own $1.4 billion fund that will allow it to write checks as large as $100 million, which Marakovic said was necessary to keep pace with the increasingly competitive ecosystem. That's not going away in 2020, he said.

"Private companies are raising more money. There is more money and more rounds, so we had to bulk up," Marakovic said. "This new fund puts us in a good position with the competitive set."

A billion-dollar trend

Andreessen Horowitz - often considered a trendsetter in Silicon Valley investor set thanks to its early investment in Facebook and other now-major companies - also announced a billion-dollar dedicated growth fund in 2019, and has written several nine-figure checks to startups in the months since it launched. Other early-stage firms, such as Bessemer Venture Partners, also announced massive growth funds in 2019.

"Venture, I feel, has regressed in the last 10 years, and a lot of it is too much money coming in," Unusual Ventures cofounder and entrepreneur Jyoti Bansal told Business Insider. "We'll go through a correction at some point, I feel. Which will be healthy."

As the founder of enterprise software startup Harness and a venture investor, Bansal is uniquely situated to see both sides of the debate. The correction he sees isn't one of macroeconomics or consumer spending, but of the power dynamics between venture investors and founders. With smaller funds, he thinks founders will remain in control and investors will have to find other ways to compete for deals.

"Investors tend to hold companies accountable at every stage, and you don't want the governance structures to taint it in any way. You don't want the company and the management team and the founders to have almost no influence and it's so much controlled by the investors. But you don't want the other way also, like it's so much controlled by the founders and the investors have no control, no influence. Either extremes are bad," Bansal said.

WeWork was an example of the founder-friendly extreme, Bansal said. In his view, WeWork's investors agreed to terms that left too much control with cofounder and CEO Adam Neumann, who ultimately stepped down amid a disastrous attempt to go public.

A new dynamic emerges

In the wake of the cautionary tale of WeWork, investors are not surprised that founders are anticipating a change in the power dynamic between the two.

Investors are more hesitant to sink millions of dollars in venture funding at the lofty valuations some founders were looking for, or might choose to exercise more control over its board of directors or other matters of corporate governance.

This could very well be why founders are starting to take a hard look at the fundraising landscape in 2020, multiple investors said - but that's not necessarily a bad thing. More restraint and realistic growth targets might help in the event of an economic downturn and create stronger companies in the long run, they said.

"We know and have seen this before," Sapphire Ventures cofounder and CEO Jai Das told Business Insider. "You buckle up, cut costs, soldier on, and come out on the other end. The companies that survived 2001 and 2008 came out much stronger when the downturns stopped, and as investors we have the resources to help companies to go through that."