Part 1: What We’re telling our portfolio companies
There is a lot of advice out in the world for startups right now — most about austerity. There is great content from Craft Ventures, Lightspeed Venture Partners, Sequoia, and almost every other name brand VC for founders to get advice. Like the photo above, it feels like the first waves of the storm are starting to crash.
We took some time to digest it all, and shared consolidated points with our portfolio. At Pack Ventures we invest exclusively in early-stage companies from the UW ecosystem, so we’re going to focus this advice here, and to pre-Seed and Seed stage companies with a bias toward healthy growth.
- First and most important, expect AT LEAST 18 months between funding rounds. Over the last couple of years, we’ve seen the gestation time of a startup shrink, and companies raising rounds every few months. That isn’t going to happen (and that’s a good thing for everyone, as it’s going to help build discipline and strategic muscle).
- Second, increase all your metrics. Think you need 100 customers in your first six months? Make it 200. We want to see ambition from our founders, along with a deep understanding of how changes in the VC market affect how progress is measured.
- Third, get ready for VCs to dig deep into those metrics. The days of a single sheet of top-level metrics are gone — now VCs will want to spend extra time (sometimes months) with you, understanding your business and your numbers. They will be looking at the quality of your metrics, not just the highlights.
- Revenue multiples have dropped, so your valuation expectations should align with the new normal. Public software has dropped from 40X+ revenue to 8-10x (historical average). Biotech public companies are now trading for less than cash.
- VCs won’t stop taking meetings, but they are slowing down their check writing. VCs want to learn, even if it is not a good use of your time. It’s helpful to build VC relationships early but meeting new investors over the next 6+ months might not be the best use of your time. Unless you need to raise now, or you have stellar metrics to raise, we recommend putting your head down and getting to work building your business.
- VCs likely have less capital – you may have heard there is 250B+ in dry powder in VC funds. Some veteran VCs only expect $25-50B of that to be deployed, which would be an 80-90% decrease in what is available. How would you operate your business differently if you knew there wasn’t cash waiting to extend your runway?
So, given all of these “headwinds” for founders, why are we still optimistic?
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- Hiring may become easier because stock values are down at big companies. Reach out to those dream candidates.
- Companies will become leaner and more efficient – you all build brilliant products that make organizations and people’s lives better. Time to sell.
- Pre-seed and seed are a good place to be in this market – all you have is upside and a chance to crush it.
- When you make it through this fundraising environment, you will be more resilient and better positioned to win your markets as your competitors run out of cash.
While the market changes create more work for founders to raise, we believe this is a good thing. Spending time figuring out how to communicate the nuances of your business is a great use of time. That understanding will translate into better business decisions, and a better partnership between you and your VCs.
If you are an early-stage founder with husky roots building the next great tech platform - connect with us here.
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