How Founders Increase Fundraising Success in Investor Leaning Markets
As venture markets shift back from founder friendly to investor friendly, startups need to be more prepared and calculated than ever when trying to secure funding to grow their business.
Pitchbook data shows the dramatic shift in fundraising markets from 2022 to present
The days of fundraising on little more than an idea and a few slides are over.
In the last fifteen years, there has never been a time more favorable to founders for fundraising than the trend we saw from 2020-2022. Since then, there has been a sharp shift in the venture markets towards what we typically consider an “investor friendly” environment. This means smaller evaluation multiples and more equity is given up in earlier rounds for founders. In addition to this, the time between fundraising rounds is rapidly increasing which we typically correlate with an increase in effort and time to secure new investment.
So what does this mean for founders?
Well, It means that fundraising is just flat out harder than it used to be. More rejections, more meetings, and much more due diligence by investors.
However, if you take a more macro approach to analyzing this data, it is clear that this seemingly dramatic shift away from a founder friendly market is more of a return to the historical median of venture fundraising. This is important because while this experience might seem new to many founders, for many investors who have been in the game for years, this is just a shift back to what they are used to dealing with.
How can founders not just survive but thrive in this market?
When securing fundraising gets harder, we find that investors not only ask for but expect startups to be much more dialed in when it comes to their strategic thinking (across both product and go to market). Having a vision and a pitch deck is no longer enough. Founders must be prepared to walk into every room that they enter and clearly lay out their vision, how they arrived at it, and what their plan is to execute on it.
From our conversations with investors and founders alike, we believe this is the case for the following reasons:
It has never been easier to build SAAS with low to no code tools than it is today. Anyone can build an MVP but to stand out, showing how to take your idea or MVP and turn it into a thriving company (and thus high return investment) is key.
With time between rounds increasing, investors have more opportunities for due diligence. They see more players in the market, can have more conversations, and thus more opportunity to identify the best horse in the race.
With evaluation multipliers now lower in earlier rounds, investors are looking for more revenue at the early stages and want to know that the founders they are backing have thought through their growth strategy.
If an investor asked you to list out your company vision and walk them step by step how you intend to execute on that, would you feel confident doing that on the spot?
If the answer to this is not a confident “yes”, then this is where you might struggle to secure fundraising in the current market.
