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by kenneth
1460 days ago
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> 1. Wait if you can. Even just a few months. VCs tend to freeze up in the face of macro uncertainty. This happened in Q2 2020 when COVID was very new – nobody knew what was going to happen, so investors just paused for a few months. Then things really took off. I think we're in that "I'm not sure how things are going to shake out so I'm just gonna pause/slow down for now" period right now. Investors will get used to the conditions – regardless of what they are – after a few months. The summer is also a terrible time to raise money, so I'd suggest you wait till the fall regardless if you can. If you gotta go out now, read on... I don't agree with this advice. Sure, looking back at March 2020, you'd be right. But this time we won't have the Fed to print unlimited money and artificially stop the crash in its track, create a surplus of capital to deploy, and destroy the value of the US Dollar in the process. This newer downturn is us having to pay the price for the foolishness of spring 2020. And it will be far more expensive than it would have been just dealing with it back then. The dollar will never recover this destruction of value – and all we've done is transfer a massive amount of wealth to those who had capital invested in growth assets from those who didn't. (i.e. from the poor to the rich) If you need capital at all, start raising it now and don't wait. Nobody knows how bad things are going to get, and there's no savior bailing us out in a couple months this time. (Am a seed VC) |
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I'm not saying that waiting a few months will make it better like it did in 2020. My experience is that most investors don't know how to act in a rapidly changing environment. Nobody wants to look like an idiot holding a bag just a few weeks after doing a deal with a sky high valuation on a company that's hype-y and doesn't have strong fundamentals. What investors end up doing is just pausing investing to get a feel for where the market is going to end up. As a founder you don't want to pitch VCs during that "pause" period. VCs still talk to founders during this pause period, they just have little to no intention of actually deploying dollars in anything that's not completely obvious (whether they realize it or not). You see it in this thread with a few comments from VCs around deals above seed stage definitely feeling "stalled". That's exactly what I'm talking about. Founders just end up burning thru a bunch of investor leads that are no's today but could likely be yeses in 3 months time. I think we're in that pause period right now. And if a company is able to, it's probably best to wait 90 days for VCs to adjust.
So what if it gets worse? In that care investors are settled in and know the game. They'll be deploying capital, just with more scrutiny and lower valuations. Capital will still be out there – there's tons of funds and plenty of money available for seed stage. That's a better situation than the "pause" period I describe above, where founders go out pitching and investors kick tires but don't deploy capital.
Also my opinion is that the summer is the worst time to raise, regardless of macro market conditions and even in great times. Once school gets out, people start traveling, etc...the reality is that the old trope of VCs don't work over the summer is probably unfair to some in the industry, but not undeserved :)