Is it really the ‘worst time to fundraise in history’?

For the past year, it’s been tough to escape the conversations about how it’s seemingly the worst time in the history to fundraise (and therefore a horrible time to start a company or already be a founder).

For example, this tweet was just published yesterday about how seed is dead.

Is this actually true though? This tweet sums up the weird contradictions happening in the world right now:

… and I think the same applies for VC/fundraising/founder life.

I talked to a dozen-ish people including founders who recently raised, seed stage investors, multi-stage investors, etc. Even among a relatively small group, I got mixed answers. Here’s what I learned:

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The only things I heard that seem to be universally agreed upon:

1. Growth stage fundraising is an uphill battle. The bar is higher. Metrics (revenue, growth, exit opps) are being scrutinized. VC firms don’t want to capital call large amounts of money from their LPs or risk deploying large amounts of capital in general in this environment unless they feel like something’s a great deal.

2. AI is the main exception to everything going on. (duh) This industry will always have a hype-y/hot industry and AI is ✨it✨ right now. (And if you’re part of the OpenAI mafia, forget about it. You’re extra immune. Also… call me! 😏)

The other things I’ve heard:

1. Some say seed (valuations, deal pace) is affected; some others say it’s immune.

   1. When I asked my VC friends about valuations, some said the average seed valuation was unaffected compared to a year ago, while others are seeing more pre-seed rounds (~$7M valuations) get done and seed valuations in general come down at least a bit (~$10-20M).

   2. When I asked about pace, I got similarly mixed answers. Some say pace is the same or even higher (”an unexpectedly busy summer” 😂). Others say their firms have barely done any deals this year at all.

2. Although there are less players overall in seed (aka not as many crossover funds aggressively investing in seed stage companies), there are still some multi-stage firms that are deploying heavily in seed stage and sometimes only seed stage. A couple of multi-stage firm investors I talked to mentioned that they’re easier to get approval for internally (smaller check size = easier ask from partnership) and the amount relative to the fund size means they’re seen as ‘free’ options on future investments and easy ways to keep tabs on certain founders. This is likely a reason why some people aren’t seeing much depression of seed stage valuations.

3. The macro-environment’s effect on Series A’s is more up for debate. Some people lump them in with seed and say they’re affected, but not majorly - they’re still happening, just with slightly lower valuations and where the bar is slightly higher. Others compare Series A’s more closely to growth and say they’re facing similarly large headwinds.

4. In general, deals are closing more slowly, even for competitive deals. 2 founders I talked to who had successful seed raises (one for AI, one for consumer-y healthtech) mentioned their processes were long -- 6-12+ weeks, even though they had multiple offers on the table. This is different than before, where ‘hot’ deals could close in as little as 2 weeks (or less).

   1. VCs are taking more time to schedule meetings and having founders meet more people (and therefore have more ‘rounds’ over more weeks). Diligence is also happening over a longer period of time.

My take on why the feedback is so different across the board:

It feels firm-dependent, and people’s opinion on the market is dictated by the culture of their firm & how they’ve now chosen to engage with the current market (given their own positioning aka seed vs multi-stage, their LPs’ comfort/opinions, their firm philosophy on price/investing, etc).

For example, firms that were historically more conservative/price sensitive are seeing more opportunities in the market and therefore it feels like valuations have come down from historical highs. Other firms that are historically more aggressive/price insensitive/chase ‘hot’ deals are still doing that, and therefore it feels like things haven’t really changed that much.

I’ve heard from some friends that their firms have done almost no deals this year while others have done the same/more because they’re taking advantage of cheaper valuations at the growth stage.

Ok cool, so as a founder, what do I do?

1. Prepare for a longer process. Expect it to take 6-12 weeks or longer, and if it’s shorter, amazing.

2. Treat the process more like a search problem, not a persuasion problem (great advice from one of my favorite founder friends here). In other words, expect more rejections for reasons beyond your control (the fund isn’t investing almost at all, for example) and focus on finding the ones that will invest (because they believe in you and because they’re actually actively investing in your space/stage).

3. Keep almost everything else the same? I think the traditional playbook (which I wrote about here) basically applies. Expect more firms to drop out because of valuation expectations, so the ~ask aggressively for a valuation you expect~ playbook may work on less people than before (although this was never anything I used/felt comfortable with myself).

Thoughts? Different experiences? Want to call out a typo? Reply to this note! Would love to hear about it.

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