As we enter 2023, many are experiencing a sense of apprehension. Uncertainty and change are common in the startup world, but those feelings can be intensified as leaders consider the months ahead and do their best to determine the most successful course of action in a tricky market.
On January 25th, Bolster hosted the sixth installment in the Navigating Choppy Waters series. Our panelists, Ryan Bloomer (Managing Partner at K50 Ventures) and Rupa Athreya (Chief Accelerator Investments Officer at Techstars) discussed their expectations and tips for founders and CEOs about this year and how to best approach equity conversations in the coming months. Watch the recording here.
We asked our panelists for their perspective on 2023, and while they acknowledged that VCs are investing more conservatively at the moment, checks are still being written.
Practicality is key, Rupa Athreya told us. Investors are looking for viable businesses that have traction and product market fit—there’s less focus on unproven but good ideas, and more focus on paying customers and a clear path to profitability. The current market is less about FOMO and more about fundamentals.
The past couple of years got overheated. “If you raised in 2020 to the first half of 2022 and now you're raising again,” Ryan Bloomer said, “I would really taper your expectations for valuation to be potentially at the same price, or potentially even lower.” This is less of a reflection on your business, and more a reflection of the market and the fact that VCs are in this, too. They’re looking for the smartest investment in a market that’s looking tricky for everyone involved.
“Don't chase a high number just because that's what was in the market in the last year and a half,” Rupa added. “A flat round is not a bad outcome.”
Want to show VCs you “get it?” Be prepared for their questions. Show that you’ve got product-market fit. Demonstrate that you’re spending money thoughtfully and running lean, while still maintaining a growth trajectory.
“In times like this,” Rupa said, “people are always going to be thinking, ‘Do I need this thing?’ And that's where product-market fit comes in. That's where really doing your customer discovery, and demonstrating that there's a market and a real need you're solving. One of our MDs likes to say, ‘Create a painkiller, not a vitamin, and prove that there's a need for what you have.’ That's really the advice to founders right now.”
Create a painkiller, not a vitamin.
Don’t forget though: it’s a two sided conversation. Ask questions of potential investors! How are they handling the current environment? How has their investment thesis been impacted? What investments have they made in the last six months? Rupa pointed out that this is a great way to determine which investors are willing to chat, but won’t be writing you a check or aren't the right partner for your team.
Ryan agreed. “You're not going to get this sky-high valuation… So you can now pick, you can put yourself back in the driver's seat by picking and asking the investor the questions that you need answered in order to actually take on a partner at that price.”
Finally, don’t forget that you have options. “Have your Plan A, which is fundraising, have your Plan B, which is profitability,” Ryan said. Then remember “there are other investors besides venture investors… there’s all sorts of different ways in which to get money for your business.” If venture capital isn’t the right fit for your business right now, he suggested looking at private equity investors, high-net-worth investors, or corporate investors.
Back to Basics
Rupa perfectly stated the overarching theme of the discussion: “At the risk of repeating myself… bring it back to the basics. Focus on fundamentals. There's lots of opportunities out there. That’s what folks like Bolster and Techstars [and K50 Ventures] are here to help with.”
While this may be a tough year to raise—compared to what we’ve seen in the past couple of years—there’s still funding available. Get the essentials right, adjust your expectations, and know your options. If you’re a founder determinedly driving forward in 2023, stay focused. Ryan told us “I’m liking the founders that are coming to us now because it's so obvious that they want to do this.”
Keep up with the speakers:
Rupa Athreya: LinkedIn