This month I had my biannual chance to be a fly on the wall while Silicon Valley Investor Partners had a very candid, frank conversation with a group of Seed/A startups that had already raised sizable rounds during the “party” of 2021 funding.
The companies gave a “Quick Pitch” and the investors gave unusually candid feedback, because we asked them to.
I won’t go into the specific feedback they gave to the companies – but I want to address 3 things they said that are important for you to know:
- What’s the State of Investments?
Unanimously they agreed that 2020/21 was a crazy time that ballooned into unfathomable proportions, valuations simply didn’t make sense. Many things that got funded weren’t deserving, it was merely hype. One partner called it the “Winner’s Curse” because it’s nearly impossible to justify the valuations for the next round – the metrics will have to be gargantuan!
They all echoed the same sentiment: Seed is the new A. Seed investing actually went up; some say it never really slowed down. You just need to have better metrics than the norm for the next round. $1M ARR metrics are back for an A Round, one partner said they’re telling their companies to get to $2M!
Series A is down 26% in actual deals done YoY. Companies raising moderate rounds are getting done, back to pre-covid levels and pre-covid valuations – so we’re looking at around the way things were in 2019. It just doesn’t feel that way because of the hype that happened.
And this is going to mean tough times ahead for Series B – because it is nearly impossible to justify their A valuation with metrics they’ve achieved in the last 18-24 months. There too, the investors say that B Rounds are back to “normal” $10M raises at a $20M post-money valuation – rather than $20M at $100M post. This in the long run is also a good thing. So when you fundraise for growth – you’d better focus on a repetitive model, prove that you understand your economics, you’re lean, and showcase that with your new runway – low risk, low possibility of NOT hitting the bars.
The overall sentiment was that this is a great time to start a company – lots of talent available at more realistic salaries. And if you can prove your efficiency and numbers, it’s a great time for Seed and A companies.
- What’s your take on the AI explosion and investments?
All of the investors agreed that they were seeing endless hype with GenAI, and it’s happening to everyone at once, so be judicious with how you approach your AI strategy. Don’t just throw AI up on the slide for the sake of mentioning it, show your secret ingredient, but also, what will you do with it, your differentiation, your moat.
GenAI infrastructure is the HOTTEST investment realm at the moment. Showing how you support the infrastructure of LLMs (Large Language Models) is great. They are more worried about AI apps and commodities though. Keep your finger on your pulse, show your unique differentiation and how you will win in the long run.
- What’s the most important thing to focus on in an investor pitch now?
There were several golden nuggets here:
BIG TAM and PMF are Back – And big time! Metrics HELP support the story – but ultimately in Series A – investors need to see PMF (Product Market Fit) in TAM question – how big can this get? Convey PMF in a big market. When there are no concrete, tangible metrics yet, in large markets – SHOW GROWTH RATE as a reflection of how big you can grow.
Enduring Differentiation – Investors won’t see returns from you likely for 8-10 years – with all the impending changes, why is your differentiation going to sustain today and years down the road? Show that you are building something to last. Why is your team exceptional and why are they the ones to build it?
Nail good storytelling – it’s becoming MORE important to rise above the noise. Anytime you’re pitching a solution – LASER in on what’s the pain, what’s the business value, who’s pain are you solving and why are you building a stellar experience for them? But it’s more than storytelling stress – it’s humility, hard work and defensibility.
So get to work – use tools to help build a great story – but most of all, prove why you’re in it for the long haul! Good luck!
Written by Donna Griffit.
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