With lowering evaluations and extremely reserved VC investments there is a growing concern of What’s next for global crisis.
In this scenario, most entrepreneurs should STOP fundraising. This is not without reason. In fact, there are five major causes.
There are dozens of pitch decks from founders seeking “bridge” or “extension” funding, which means they need to raise additional funds at the same valuation as their last round.
Macroeconomics are not in your favour right now.
rising inflation, rising interest rates, and staff layoffs at major tech firms (Meta, Stripe, Google, etc.) Write-downs in VC portfolios and lower valuations: all of this contributes to the rising cost of capital.
People are becoming more and more sure that blockbuster venture capital investments will return in 2023. Companies have been hesitant to invest in the past few months, but this is likely to change.
$300 Billion in locked VC Funds
If venture capital firms start to use the large amount of “dry powder” they are currently holding on to, investments could be at or above the levels of 2021.
Based on an analysis of over a decade of venture fundraising and investments, there is about $290 billion in “dry powder,” of which $162 billion is set aside for new investments.
So, what exactly is dry powder? It is money raised but not yet spent by venture capital firms. And venture capital firms have a record amount of it right now.
With the economy stagnant, prices surging, and the market on a roller coaster ride, venture firms have pulled back on investment in 2022. However, these companies will face pressure to deploy the large sums of money that have been sitting idle.
“At some point, the floodgates will open” This is correct. With startup valuations lower than last year, it may be the perfect time for investors to increase their participation in firms that have shown success despite incredibly difficult conditions over the last year.
This might be a huge chance not only for investors but also for those founders who can position themselves correctly and capitalize on this amazing possibility.
Investors will be on the lookout for the next big thing: companies that are forward-thinking, tremendously innovative, and poised to take off once the economy recovers.
Tech in Recession
It has occurred previously. Tech companies that were backed during previous recessions, when valuations were lower, have gone on to great success, and investors who saw the potential and opportunity have made a lot of money.
Startups should begin cautiously planning for funding to resume and considering how to effectively position themselves for investors.
Startups will most likely continue to face lower valuations, but if all goes as planned, getting, funding should become easier in the coming months.
This might be an exciting time for both investors and founders, and the next great tech titan could be formed during this period.
Points to think about:
If possible, avoid fundraising in this environment; instead, focus on survival, even if it means lowering costs and decreasing your product range to double down on what customers are paying for today.
To Understand your company strategy and answer the question, “What will it take to become profitable?” for yourself. The goal is to survive and remain alive for the following two years!
If you can’t survive without raising children and you still have six months of runway, Don’t waste time fundraising; instead, make the difficult decision to close the business, pivot to survive, or sell off any valuable intellectual property.
We are not working in typical market conditions, so act accordingly.
Please forward this to a founder who needs to read it!