As an investor in 2 funds and 70 startups, and from speaking to dozens of investors and founders since Jan, this is what I'm seeing in the market, and what I expect from the next few years. Am I seeing a warped version of reality, or do you see this too? 𝗦𝗮𝗹𝗲𝘀 𝗮𝗿𝗲 𝗱𝗼𝘄𝗻. Many companies aren't buying or hiring (especially those with venture backing). This is affecting the entire ecosystem. If you sell to "high-growth" companies especially, your business is suffering big time. 𝗠&𝗔 𝗶𝘀 𝗺𝗼𝘃𝗶𝗻𝗴 𝗮𝘁 𝗮 𝘀𝗹𝗼𝘄 𝗰𝗿𝗮𝘄𝗹. IPOs and buyouts are very few and far between, and no longer speculative. To get a deal done, sellers need a water-tight value prop. and a low multiple. 𝗧𝗵𝗲𝗿𝗲'𝘀 𝗻𝗼 𝗹𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆. Deals are delayed, managers can't return money to LPs, and LPs aren't backing new funds. Emerging managers are disappearing by the day. 𝗠𝗼𝘀𝘁 𝗳𝗼𝘂𝗻𝗱𝗲𝗿𝘀 𝗰𝗮𝗻'𝘁 𝗿𝗮𝗶𝘀𝗲. With no exits for founders and early-stage investors, there's a lot less capital available for new startups. Fewer deals are closing, and at lower valuations. •— 𝘚𝘰 𝘸𝘩𝘢𝘵 𝘤𝘰𝘮𝘦𝘴 𝘯𝘦𝘹𝘵? 𝗖𝗼𝗺𝗶𝗻𝗴 𝗮𝗿𝗲 𝘁𝗵𝗲 𝗱𝗮𝘆𝘀 𝗼𝗳 𝗿𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝘀𝘁𝗮𝗿𝘁𝘂𝗽𝘀. Founders and individual investors alike are realising that venture funding is not, in fact, the goal. A healthy business ecosystem relies on smart people building companies that deliver value to customers consistently, get to "default alive" quickly, are staffed by capable and motivated employees, leverage the latest technologies, and put their customers first. This wave of entrepreneurs are not trying to "build unicorns". These founders are not prepared to "do or die". Instead, venture-hungry entrepreneurs will give way to more rational founders, who want to build sustainable businesses that provide a good return, over a realistic time frame, to their investors, their staff, their families and themselves. Some might even enjoy the journey. Most founders will (quite rightly) forget billions and focus on millions. They will raise and exit at lower valuations, use less external capital, and build healthier, more resilient and longer lasting businesses. This has been a long time coming. •— #rationalstartups #startups #earlystageinvesting
Will see less founders because risks are higher. Will see more real business and less one trick pony stuff. Will see average more returns to LPs, less 100x returns.
It is not a bad thing for several reasons: 1) it is better for the environment: we will avoid having 100 electric rental scooter companies who just care about growth and have no consideration for the environnement , just tossing away thousands of scooters when they are bankrupt 2) it is better work life balance for founders and employees without next funding deadline 3) having profitable companies from the scratch will help build more valuable products
I think that the world is evolving too fast to say that. Your prediction was relevant 1.5 years ago. Currently, they are throwing money at AI, MIL, and humanoid startups at excessive valuations. Now they expect tumbling interest rates later this year... So, what will be the effect of that? A deflationary impulse, cheap money?
And about time too. In my relatively small network of investors, that’s how we all achieved our successes. Not raising money as a means to justify increased valuations that are based on clouds. We built businesses based on actual T/O and actual profit. And other than the odd bank loan and an overdraft, did it without raising investment.
Surely is the plan for my up coming SaaS business. Was very intrigued by raising capital, if not from VC maybe angels. Today and coming close to MVP? Not really. I’d rather build slower and more organic, a long term sustainable business. Maybe I would never get capital even if I tried to raise, but now I don’t feel urge to raise at all 😊
I agree with your points, though I’d have to add that it depends on which markets you’re looking at. Some may argue that regions such as the Middle East and Africa are seeing a boom in startup creation - or is it startups moving into these regions as they’re being more well-received there?
100% - From unicorns to cockroaches (will survive anything) - Renewed focus on unit economics (even if the business isn't profitable the components are) - Real business wins .... ironically just as the hype cycle (especially here on LinkedIn) reaches new heights
A long time coming indeed - and I hope will create a much more sustainable start up scene with far fewer "boom then bust" scenarios, which are not only disappointing for investors but can be devastating for the people employed.
B2B software special situations investor. Minority / Majority - Anywhere we can add value #investor #bootstrapping
2moThe days of the rational startup are long overdue. There was too much money chasing Unicorns. Everything got inflated. But, underneath there are some good businesses that achieved PMF and decent ARR, just not the levels necessary for follow on VC rounds. I refer to these as Zombie businesses. Investors won't follow beyond small convertible loans but also won't enable the founders to restructure the cap table to enable a life beyond VC. We are seeing an increasing flow of these businesses get passed to the administrators/liquidators where the value destruction is catastrophic.