The past couple of years were all about huge valuations and less about needing to prove peak operational efficiency across the entire business. Even if you didn’t experience this first-hand as a startup founder or employee, the sheer amount of funding dispersed just last year proves my point.
This year’s a bit different. In large part due to persistently high inflation, round sizes and valuations are starting to come down — or normalize.
As a CEO who successfully raised capital in Q4 last year and is actively raising another round right now, I want to share my observations and tactical tips with other founders looking to fundraise in today’s volatile market.
Investors right now really like safety and security products, life-saving drugs and low-cost consumables, because these are essential products and services.
What investors aren’t interested in
To give you an idea of my data sample size, I met roughly 60 investors to raise both my seed and Series A rounds. About 95% of those investors were based here in the U.S. (mostly in Silicon Valley), and they came from a combination of private equity, investment banks and growth VC firms.
Based on my conversations, here are three things I’ve noticed investors aren’t interested in right now:
Funding startup trends
Lately I’ve found most investors are looking for reasons not to invest. Common pieces of feedback for founders include, “Your churn is too high”; “You have too much revenue concentration from a single customer”; and/or “Your product has possible future regulatory risks.”
Businesses with lots of capital expenditure
If you have a capital-intensive business or go long stretches while being EBIT negative, you may find it hard to find a willing investor. Now is a terrible time to show a big loss in short-term operations.
Backing new companies
VCs are more apt to continue investing within their portfolio companies right now.