Even in these times, smart startups can get funded
Despite the numbers, there’s a glimmer of optimism on the horizon for founders. Jenny Fielding, managing partner of The Fund, shares that “investors now seem more comfortable with what analysts are calling the ‘new normal’ and are back in action investing
Be pragmatic
In the new normal investors are paying very close attention to a company’s valuation and funding numbers, and the reasoning behind the numbers. “We’re extra mindful of how much a company is raising, what kind of runway that gives them, and ultimately how much time it will take them to reach the next meaningful inflection point so they can raise capital again,” says Cat Hernandez Middleton, general partner at The Venture Collective. “Instead of thinking, ‘How much do I believe I’m worth?’ shift to “What valuation can I grow into comfortably in a short period of time?” says Middleton. That means raising at a valuation cap that you can realistically double or even triple within 18 months, based on your business results.
Metrics matter
One unmistakable change in the ecosystem is the move from faith-based investing to evidence-based investing. In this new normal, traction is the new black—particularly the kind of traction reflected in revenue, high margins, and repeatability, or at least a clear path to these results. “If the startup lacks metrics that demonstrate traction and a path to sustainable revenue, then they might need to put their fundraise on hold until they have those metrics,” says Jacqueline Shoback, cofounder and managing director at 1414 Ventures.
Target the right investors for you
One thing that makes fundraising much easier is to have strong investors acting as your advocates. Masha Bucher, founder and general partner at Day One Ventures says, “The most important thing is to be closer to existing investors—keep them updated more often, be more visible and vocal about successes, focus on these relationships.” Elizabeth Yin, general partner at Hustle Fund, adds, “The best companies are raising largely from insider investors who are super bullish and want to own more of their existing portfolio companies and are bringing their friends into these rounds.”