What's going to happen to startup fundraising
The stock market is down over 30% since its peak earlier this year, and investors are selling everything. So what’s going to happen to the startup market? Here are my thoughts:
- VCs will focus on portfolio companies first - They’ll want to (1) make sure companies have at least a year of cash, (2) revise operating plans to extend runway, and (3) review timing of fundraises to either quickly raise now or wait until the market stabilizes
- New deals will take longer to complete - Not only are investors are focused on their existing companies, but remote work makes it more challenging to communicate (both externally and internally), and investors will want to do more diligence on every deal
- Very early/very late stage companies will be most affected - Valuations will fall across the board, but it will start with later stage startups who are comped against public markets. Also, individuals will have less capital to invest in risky early stage startups
- Many VCs will have a hard time raising their next fund - Fund performance will suffer from lower valuations and a slowdown in M&A/IPOs. As LPs review allocations, they will also have fewer dollars to invest in PE/VC because of the declines in public equities
- Great companies will continue to get funded - Investors still have plenty of dry powder and want to invest in great startups. During this time, startups will likely have less competition for talent, and they will focus on building more resilient, long-term businesses