While the world of startups continues to feel a lot of pain, there are several new venture funds being raised. In 2023 already, we've seen funds like NEA close over $6 billion, early-stage firm Cowboy Ventures announce a larger fund along with an opportunity fund, marketplace-focused FJ Labs closed $260 across two funds, a new, sector-focused firm called Dimension launched, and Defy closed its third fund of $300 million.
It can be disorienting to square the current macro environment, funding downturn, and zeitgeist chatter with hundreds of billions of dry powder VCs are sitting on today. It is important to understand what is going on in the funding market and what to expect for the foreseeable future for founders and operators of mid to late-stage startups so as to take the necessary actions and march forward.
While VCs have capital commitments from their LPs, it doesn’t mean the funding dynamics of the pandemic era for startups will or should persist. There’s a consensus amongst seasoned investors and founders that valuations are coming down, rounds are taking longer to close, overall activity is falling, and performance expectations for raising subsequent rounds are going higher.
Several investors have shared some of the following as the consensus tractical advice for founders:
Try to raise sooner than you expected this year if you need to
Cut burn as much as possible, even after layoffs
Focus on survival, not valuation, so as to have a shot at thriving
Trade better unit economics and lower cash burn for exponential growth
Be decisive about hard calls
Bring in seasoned operators with experience in leading through difficult situations
That being said, the conditions and expectations for seed-stage startups are quite different. Firms across the funding landscape are reorienting around early-stage rounds. While the bar for raising has gone up across all rounds, a lot of the dry powder is dedicated to the seed stage at established firms and brand-new seed capital. On top of that, growth and crossover firms are rushing to make early-stage investments.
If you have a working product, some early growth, and are capital efficient — there’s a lot of capital out there hungry to invest in the next generation of founders.
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