it’s complicated times, but this is not the first time I’ve heard this.
This year has brought the first signs of skepticism and pressure on the enterprise. We have experienced an unprecedented period of optimism and rising value in the last decade, and the test of intuition we are seeing now has been a long time coming.
I have experienced two major financial crises in my career: the bursting of the bubble in 2000 and the financial crisis of 2008. During these periods, I led a tech start-up and a fintech start-up, respectively, and as such, I experienced the impact such events can have. have.
The key difference between 2022 and previous downturns is that this contraction has been expected for a long time, while previous downturns were much more sudden. Markets have reacted, and valuation multiples for both public and private companies have been heavily compromised, leaving growth investors fearful of missing out on targeted returns.
Growth investors have become much more reserved in making new investments, and many of them are rethinking their approach to valuation. Investors are likely to be sidelined for the most part as markets stabilize and a new set of comparable multiples are set. This may take some time.
Just as public valuations affect the returns of rising investors, early-stage investors have also been hit hard. As an early-stage investor, we are always looking for a company’s path to a possible exit and the associated valuations. The critical next step is securing growth investments, without which many startups will not survive.
We encourage companies to secure a 24+ month runway with any fundraiser today.
Early-stage investment is also shrinking as investors focus on lower valuations that allow for revised exit routes and the health of the business, which is now becoming more important than growth at any cost. The tightening of public markets essentially has a domino effect that ultimately makes it harder for startups to raise capital at any stage.
It’s more important than ever for founders to stay calm and act strategically. In M13, we have some thoughts on how Founders should think about the market and their opportunities as they navigate this period of volatility.
Below are a number of considerations based both on my firsthand experience of the austerity times and what we have learned from our existing portfolio today:
The founders should consider a new schedule for the investment process. Last year, we recommended setting aside three to six months for fundraising, but now we recommend founders schedule a process of six to nine months for each round after preseeding early.
Ratings and dilution
Founders should also be open to new valuation considerations. Comparable last year’s estimates cannot be confirmed today, and expectations should be managed. Dilution will be more of a concern and may make the founder want to raise less capital. Ultimately, this leads to more economical post-financing strategies.
Credit: techcrunch.com /