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This isn't the first time I've heard that.
The first signs of skepticism came this year. Over the past decade, we lived through an unprecedented run of optimism and climbing valuations, and the gut check we are seeing now has been in the works.
The financial crisis of 2008 and the bubble burst in 2000 have disrupted my career in one way or another. I have experienced the impact that such events can have when I was running a technology startup and a fintech startup.
The previous downturns were much more sudden than the contraction that occurred in 2022. Growth investors are afraid of losing the opportunity to secure targeted returns due to the compromised valuation multiples for both public and private companies.
Many growth investors are changing the way they approach valuations. As the markets settle and a new set of comparable multiples is established, investors will likely stay on the sidelines. It may take a little while.
Similar to how public valuations affect growth investor returns, earlier stage investors have also been heavily impacted. Early-stage investors look for a company's path to eventual exit and associated valuations. Securing growth investment is the most important step in the process of startup survival.
We recommend that companies secure 24+ months of runway with any fundraise today.
As investors focus on lower valuations that accommodate revised paths to exit, and on business health, which is more important than growing at any cost, early-stage investments are tightening. The tighter the public markets, the harder it is for startup companies to get capital.
It's important for founders to be calm and strategic. We have some thoughts about how founders should think about the market and their options as they navigate this period of volatility.
My experience in times of austerity as well as what we have learned from our current portfolio are some of the considerations that are below.
The investment process needs to be reconsidered. We recommend a six to nine month process for each round, instead of the three to six months we used to recommend.
New considerations around valuations should be considered by the founding fathers. Expectations should be managed because the valuations from last year can't be supported. A founder may want to raise less capital if they are concerned aboutlution. The more frugal post-funding strategies are led by this.
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