R William M.’s Post

Venture capital appears to be going through a transition. We received 3 written offers from VC firms and declined all three due to terms. Many VCs got burned by investing too early and have changed their criteria to require traction. I get it. VCs want to lower risk and increase the chance of success. Makes total sense. Some seed investors are requiring $100k/month in revenue vs the "old days" of having an idea with an MVP. In our case, VCs wanted liquidation prefs. Why would we give an investor prefs if we have more money invested than the investor? Not to mention, years of work that we performed getting the company in revenue when the investor was nowhere to be found. By VCs wanting startups to become more mature and in revenue, VCs are asking founders to invest more of their own capital and friends & family capital. This creates problems for VC terms. I was willing to give prefs early on but there's no way I'm giving investor prefs when I'm the majority shareholder and investor. Heck, we're only a few months away from getting bank credit lines at this point. VCs don't have the same leverage in negotiation post revenue that they do early on. Liquidation prefs and other terms are going to have to change if VCs want to reduce risk and require additional revenue traction. I can see a lot of VCs going out of business if they don't adapt. #venturecapital #vc #investing

𝗦𝘁𝗮𝗿𝘁𝘂𝗽𝘀 𝗮𝗿𝗲 𝗴𝗲𝘁𝘁𝗶𝗻𝗴 𝗼𝗹𝗱.👴 Not in the “you’re out of touch” way—just literally aging! Take Series A: in 2019, companies were a median of 2.6 years old when they raised it. Now, in 2024, they’re closer to 3.5 years. And it’s not just Series A. Across the board, companies are taking longer to reach each funding stage. 𝗦𝗼, 𝘄𝗵𝗮𝘁’𝘀 𝗴𝗼𝗶𝗻𝗴 𝗼𝗻 𝗵𝗲𝗿𝗲? A few things. For starters, startups are raising more convertible debt before hitting priced equity, so “Seed” isn’t quite what it used to be. Then there’s the funding squeeze, stretching the time between rounds for a lot of companies. And let’s not forget the frozen IPO market, which doesn’t help anyone eyeing the exit. The message is pretty clear: if you’re a founder dreaming of IPO, brace yourself for a decade-long journey. At least a decade—and “at least” is doing a lot of heavy lifting here. Mad respect to everyone in the grind. As always, thanks to Peter Walker at Carta!

While 2022 and 2023 was the correction in VC, 2024 has felt more stabilized. Yes, there is less LP commitments, less deal flow, more diligence, and smaller valuations (for non-AI companies), but with it has come a normalization and right-sizing of risk-adjusted capital allocation. The companies started in the last 1-2 years will be built within a financial climate that is fundamentally more sound and sustainable than the 2020 and 2021 vintages.

As a former founder and a current investor, I’ve seen a lot, and I get it - gotta keep a healthy runway at all times and ensure you have money in the bank. But what about these pay-to-play provisions squeeze early investors to pony up more cash or get smoked on dilution and share class? I understand the founders' desire to survive, but consider the ones who took a chance when nobody else did. They signed up for one thing, and the goalpost moved. That doesn’t leave a good taste in their mouths, as technically, the founder could not raise enough the traditional way and perhaps mismanaged the initial raise proceeds. Larger institutional investors sitting on a pile of external capital don’t feel the burden of “pay-to-play” as much as individuals, and often, it's more annoying and a minor inconvenience. The question is, is pay-to-play the only way to keep the lights on, and should angels and friends and family investors get protection? We need a system that fosters fair play for all investors while giving startups the runway they need to execute... What do you think? Let me know in the comments. #venturecapital #startups #economy2024

With the exit market slowing, secondary financings are becoming a vital tool for startups and investors alike. Check out this Crunchbase article that highlights the key trends and insights shaping up.

LatAm Seed Stage Valuations Are Finally Coming Down – This is Good for Founders and VCs When the market correction started in early 2022 the first companies to see steep valuation declines were public equities, pre-IPO, and late-stage growth businesses. Over the following 18 months, valuation declines trickled down the alphabet until they seemed to hit a wall shielding pre-seed and seed companies whose valuations remained at 2021 levels. This is beginning to change. One of the main reasons for this change is that founders starting a business today are watching their peers who raised in 2021 struggle to sustain their valuations. Many 2021 businesses have resorted to internal bridge rounds, others are doing flat or down rounds, some have decreased burn significantly hoping to grow into their previous round’s high valuation, and yet others have had to fold. None of these scenarios is ideal. They tend to add a lot of stress to founders’ lives and in most cases lead to increased dilution. The business suffers as a consequence. Founders raising their Seed round today are noticing this trend and are adjusting valuations accordingly. This is the smart thing to do for a simple reason: Raising a Series A in 2024 is very different from 2021 In 2024 investors scrutinize traction at the A-round. They meticulously review KPIs, want to understand a path to profitability, double click on cash burn, and then look at what public market comps are trading at. None of that happened in 2021 where a strong team and a compelling vision for the business were enough. What does all this mean for 2024 Seed companies? The implication of raising at a very high valuation in 2024 is that you need to be very confident that you will be able to get enough traction in 24 months to defend a 2x or preferably 3x valuation increase from the previous round. This is easier to do if you start at $7m post vs. $20m post. Conservations between VCs and founders about valuation should focus on having an honest discussion about what needs to happen to raise the next round of financing and what traction and signs of product-market fit one needs to see to go out and raise successfully. Founders and VCs are finally taking note of these new market circumstances and both are better off for it. Disclaimer: There are always exceptions to the above. Some businesses truly require more capital at the early stages of the business in which case a higher valuation is warranted.

On first glance these look way higher than the equivalent UK fund raising averages, but I reckon if you adjust for wage differences (US being 1.5x- 2x higher than UK) they are not far off. Employee costs are the biggest expense for most startups, but this is often forgotten when making comparisons across geographies and regions. More expensive people —> more capital required to get to the same milestone. Dilution will be relatively constant, so valuations and cash raised needs to shift. By all means get cheap labour from one market, then raise and exit in an expensive market, but not always that easy!

🚀 𝘞𝘢𝘯𝘵 𝘵𝘰 𝘳𝘢𝘪𝘴𝘦 𝘝𝘊 𝘳𝘰𝘶𝘯𝘥𝘴 𝘭𝘪𝘬𝘦 𝘢 𝘱𝘳𝘰? Peter Walker from Carta just shared some great insights. 🔍 Dive into the latest benchmark data for founders: pre-money valuations, cash raised, and equity sold in different funding rounds. ⏳ Brace yourself for stagnant fundraising numbers, a surge in down rounds, and a longer gap between Series A and Series B. 😴 Surprisingly, M&A activity in the startup realm seems to be taking a nap. 📥 The full report is definitely worth taking a peek at your industry's tailored insights! 📩💡 #VentureCapital #StartupInsights #RaiseTheBar #Innovation #DataDriven #Carta #Founders #VCRoundTips

📢 One of the leading performance indicators is whether a startup deveates from fundraising benchmarks early. What does that deviation tell investors!? 🧐 General comments I hear and from what I have seen first hand... 📉 Trending lower can be an early sign that there is minimal product-market fit or that a team is failing to create value early. Either of these is a major red flag for investors. 📈 Trending higher can indicate a breakout company, but also means deeper due diligence to ensure the value can be realized. Great resource below to see where you stand as a founder with your startup. #startup #founder #fundraising #investing #strategy

Important post from my colleague Alexander Busse on seed valuations today in LatAm which are showing signs of coming down. Important take-away: Raising at a high valuation at Seed can place undue pressure on Series A rounds where traction and other fundamental KPIs are subject to greater scrutiny post-2022.