Raising money just got harder. Global venture capital funding fell 65% in February from a year prior, according to a new report from S&P Global Market Intelligence.
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As an investor, I see the funding freeze every day. Many startups I meet are completely out of money and facing liquidation.
Here are some trends I’m seeing in today’s market:
Fewer Deals Getting Done
In general, I see a lot fewer deals happening.
Everyone has slowed down, from big VC firms to syndicates to individuals. Deal volume seems to be down by around half.
Even when a great company is raising and the deal gets done, it often doesn’t fill up.
Valuations Are Down
In 2021, I routinely saw seed stage deals at $25 million, $50 million, even $100 million!
Now, a typical seed stage deal is more like $8 to $12 million. I don’t see many above $18 million.
Strong seed stage companies usually have about $200,000 to $500,000 a year in revenue.
Poor Business Models Are Unfundable
In 2021, all you needed was growth. No one cared how you got it.
Today, growth has to be cash efficient. If your unit economics aren’t solid, it’s hard to raise.
Let’s say it costs you as much to acquire a customer as you’ll ever make from them. A business like that can never be profitable.
VC’s don’t want to throw more money at a broken business model.
Pre-Revenue Companies Are In a Tough Spot
If you have no revenue, you’re totally dependent on outside funding. That funding is now much harder to get.
What’s more, you don’t have a revenue track record to show investors.
Getting those first customers just got a lot more important.
Profitability Is the Trump Card
If you can tell a VC you’re profitable in 2023, you’ll impress him. You also won’t need his money.
That’s a great position to be in, especially in a down market. You can dictate the terms or just wait until markets recover.
2023 belongs to the founders that can control their own destiny.
What are you seeing in markets today?
Leave a comment and let me know!
More on tech:
Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)
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