Top 3 vital trends founders should know before pitching investors in 2024

I’m back in the early startup stages again as the cofounder-CEO of a stealth-mode company — and a lot has changed in the last few years. My last startup endeavor took place in 2019 in a much different economic climate than what we’re dealing with today.

Recently, my name was included in a VC-focused newsletter for some reason, and I received about 40 inbound inquiries from venture capital firms curious to know what I was up to. So, while we weren’t looking to raise capital at this point, it gave me an opportunity to test the market in a really efficient way and I spoke with most of those who reached out. 

Every VC brought a unique perspective, from pre-seed and seed firms and little-known organizations to tier 1s. But together, they painted a clear picture of today’s investment economy. 

Here’s what I found out.

Change your thinking about funding rounds 

We know something structurally changed about tech startup investing in the last year, as the so-called cheap money era ended. 

Based on my conversations, it seems that venture capital has moved a full stage to the right, by which I mean what was once considered a pre-seed investment a few years ago is now seed, what was seed is now Series A, and so forth. That changes how founders need to think about fundraising and the timing and milestones needed for each round.  

Seed investors expect to see product-market fit, a working go-to-market strategy and a pricing strategy mostly sorted out, with revenue or at least adoption and traction. In the late 2010s, these benchmarks typically came later in a company’s cycle. 

Meanwhile, later-stage checks from institutional investors are mostly to fund inside rounds for existing portfolio companies.

Investors are cautious about how much risk they’ll take on

Investors are still reeling from what I call the Great Tech Depression of 2022 and 2023 (or is it 2024 now, too?). Others have called this the valuation collapse as interest rates ratcheted up to tame inflation resulting from the massive COVID-19 stimulus programs. 

As our economy veered ever closer to the brink of a recession, software sales slowed dramatically, resulting in a major reset in tech company valuations. 

As a result, VCs have become more risk-averse or more cautious in the amount of risk they are willing to underwrite. They are concerned with whether we’re seeing the “death of SaaS” and trying to figure out what AI might destroy as much as what it might enable. So, they’re looking to de-risk as much as they can. 

If you’re looking to raise, you’ll need to show more than a great idea and a slide deck, even if you’ve had past success. 

You’ll need to not only show you’ve thought things through but also prove that your business model is actually working. You’ll want to show traction and that you’ve answered the thorniest questions about the viability of your venture.

Finding top talent (or AI to subsidize it) should be easier, though

To investors, even seed investors, having a complete management team, preferably one that has worked together before and had success together before, and showing you can control development costs has become more important.

On the bright side, if you’re not able to raise capital, at least talent isn’t as expensive as it was just two years ago. As a result of all the layoffs last year, we’ve done a complete 180 on the war for talent in 2022. 

With the economies of scale inherent in the cloud and productivity gains from AI, there’s never been a cheaper time to build a company. In fact, it seems many founders are opting out of venture capital altogether.

But what about AI startups you might ask? AI will certainly pique investor (and prospect) interest but VCs have grown a bit weary and wary of people pitching AI. 

Just like the cloud-washing days a decade ago when every startup wanted to be a cloud startup, it better be more than just a wrapper or window dressing. It better demonstrably create business value or solve real business problems — not just AI for AI’s sake.

Net-net, the current constrained capital environment (which will drive founders to be more creative) combined with rapidly improving economies of scale and AI-driven productivity improvements should result in the creation of some very durable companies in the years to come. It’ll be a welcome change from the tech bubbles of the past.