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I do early stage (first check) investments in companies using Ruby on Rails. We primarily look for founders with a long term view who will be fun to work with (not nerds). Feel free to reach out, details in profile.
This is a great time to weed out bullshit investors. Like BS jobs, some don't need to exist and this downturn is a great filter for them. The ones who are still investing as normal are the ones you should still raise from even when markets are different.
In general, seed stage is less affected by the recent downturn than later stages. Which makes sense, since the time to exit for a seed stage company can be the better part of a decade, so today's macro climate has less impact.
A few tips and observations:
- from what I've seen, most seed funds are still investing, although on average at a 20-40% slower cadence than 6 months ago. On the other hand, some later stage investors are now more active at seed because that lets them keep investing while putting less capital at risk.
- assume valuations will be closer to what they were ~2 years ago. Earlier this year, the median seed valuation felt like ~$20m post, and we saw a number of $30m-$40m post money valuations. Right now we're seeing more valuations in the teens, and seed round sizes are more frequently $2m-3m instead of $4m-$6m.
- longer runways are favored. The fundraising climate over the next year is uncertain -- especially for Series A and beyond -- so the typical "raise for 18+ mo of runway" advice has turned into "raise for 24-30 mo of runway."
- cash efficiency and faster time to revenue are favored over growth in this climate.
- capital intensive businesses will be much harder to raise for.
- investor diligence is shifting away from FOMO and rushed decisions, and back toward normal diligence processes. Assume that investments decisions will take an extra 1-4 weeks for each investor.
It's not all bad news:
- anecdotally, it feels like hiring is a little easier.
- historically, recessions have been a great time to start big companies.
- there's still a LOT of capital waiting to be deployed into startups.
- "fundraises are looking like they did in 2020" is still pretty good, since 2020 was already a great year to be fundraising as a founder.
We just closed a seed a few weeks ago. At least in my experience... "new deals on hold while taking care of their existing portfolio companies" never came up. Honestly I don't even think things like the massive tech re-valuation in public markets even came up (at least not that I recall). The convos continued to focus on team, market and GTM. I will say that from early 2022 to mid 2022 - GTM increased its weight in t…
Any suggestions on where new founders should look to find seed investors?
Earlier quoted context omitted.
How often are the YC application cycles? I’m about to leave my job to work on a fashion startup with my husband. There are some technical aspects to the business that I am building into products, but my immediate focus is to get his clothing store online. I know the product(s) I want to build will be compelling, but my concern is not having enough cash to hire a small team. At what point is it best to apply? After yo…
You might consider pitching to https://amplify.la They are based in Los Angeles and I believe have had a few successful fashion startups. LA being a global fashion hub probably doesn't hurt. I have had experience with Amplify in the past and they were always helpful and not too pushy.
This is an ideal time to raise seed money. Many funds have moved heavily down market away from the big Series B/C's of 2020/2021. You now have a lot of tourists at the seed stage who are obligated to deploy capital and even if it is at 10-20% of the previous rate, that's still five $2M seed rounds for every $50-100M series B/C that used to get done. You won't get a killer valuation like 2020/2021, but you will have p…
How does one get the kind of connections to even raise a seed round? I'm in the Midwest, and unless I'm doing AgTech or something B2B no one wants to talk to me. I have a B2C SaaS product that could take off like a rocketship if I had more resources to dedicate to it.
Move elsewhere.
This is an ideal time to raise seed money. Many funds have moved heavily down market away from the big Series B/C's of 2020/2021. You now have a lot of tourists at the seed stage who are obligated to deploy capital and even if it is at 10-20% of the previous rate, that's still five $2M seed rounds for every $50-100M series B/C that used to get done. You won't get a killer valuation like 2020/2021, but you will have p…
2M for 8-10% dilution at seed? This seems ambitious, even in yesterdays market.
I wrote about it here, which I recommend you read: https://www.freshpaint.io/blog/anatomy-of-a-seed-round-durin...
Some additional thoughts ~2 years later:
1. Wait if you can. Even just a few months. VCs tend to freeze up in the face of macro uncertainty. This happened in Q2 2020 when COVID was very new – nobody knew what was going to happen, so investors just paused for a few months. Then things really took off. I think we're in that "I'm not sure how things are going to shake out so I'm just gonna pause/slow down for now" period right now. Investors will get used to the conditions – regardless of what they are – after a few months. The summer is also a terrible time to raise money, so I'd suggest you wait till the fall regardless if you can. If you gotta go out now, read on...
2. If you can't land a bigger check because those VCs have cold feet (they often freeze up during market uncertainty), then you gotta raise from small checks.
3. Small checks is a numbers game, just like B2B sales. We pitched 160 investors to raise $1.5m
4. Seek momentum wherever you can. Getting forward progress from a handful of $10-25k angels is really important for your mental state, and that will flow into every new investor pitch. And it often becomes easier to raise with the more momentum your round has.
5. Be super realistic about your valuation expectations. It's not a thing worth losing a good investor over by over-optimizing on valuation. You're better off taking a little bit more dilution now and staying alive than never getting going.
6. Ignore the advice of anyone who hasn't raised in bad conditions or isn't an investor. Everyone else doesn't know what they're talking about. Even then, don't run your business off of what one person on the internet says. I feel qualified to give advice here because I raised $1.5m in March 2020, and just raised a Series A 3 weeks ago. Just don't run your business based on what I (alone) say.
We did YC as well. Think about applying if you haven't!