There is no question on this subject: the market as we approach 2023 will no longer be what it was at the end of 2021, when growth at all costs sometimes took precedence over common sense.
But the market is not as “down” as it seems. There’s a lot of money to invest, and founders with the right mix of purpose, business model, and traction should remember that funding opportunities can still be found.
Skyrocketing valuations and questionable investments in 2021 have brought investors back to earth and prompted deeper analysis of investment opportunities. This return to discipline, demonstrated by a more tempered and stabilized volume of weekly interactions with investor pitch decks, comes as no big surprise. The pace in 2021 was unsustainable and there had to be a slowdown in funds being invested. However, it is not because there is no more money.
As of September, there was about $290 billion in ‘dry powder’ floating around – enough to fuel seed investment for the next four years – but founders are finding it harder to raise funds than they did since many years. Instead of demanding growth at all costs, venture capitalists are taking a deep breath and being patient.
Unlike 2021, starter decks that fail today don’t get as much investor time as successful decks.
Founders may be discouraged in this environment, but they should remember that they also have a “currency”. Founders should do their own due diligence in identifying investors that best suit their needs and focus on their core strengths and value propositions.
Due diligence isn’t just for investors
Founders should always be eager to set up meetings with investors, but they should also aim to reach a variety of investors.
Just as a product depends on its market, a founder depends on its investors. Not all investor meetings are created equal, so founders should thoroughly research their potential investors.
DocSend’s recent pre-seed report found that the average number of investors contacted fell from 69 to 60 in 2022, but the average number of meetings scheduled fell from 39 to 52. This could be a sign that founders start-ups begin to practice due diligence on their end as well, vetting investors and bringing different expectations to each meeting.
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