For the founders, in particular Firms starting companies for the first time, stock market rotations, the subsequent correction of public market tech stocks, and the inevitable impact on private company fundraising might seem daunting. And the last few weeks of geopolitical challenges have only added to the bleak scenario.
As an entrepreneur and venture capitalist who has experienced two downturns (the post-2000 Internet bubble and the post-2008 financial crisis), I know that entrepreneurial innovation is always alive and that building societies is a marathon, not a sprint.
If you are in the early stage, we are primarily evaluating your team to make sure the product is a pain reliever and not a vitamin.
Here are some of my favorite tips for founders looking to raise capital and build a strong early-stage company.
The capital raised and the valuation should correspond to the business phase
Rather than waiting for an early stage / Series A bloody evaluation, founders should remember that there will be many future funding rounds. It’s easier to go up than to go down, and your ultimate value comes from building a sustainable business.
Raising too much capital in the early stages can result in unruly spending, leading to layoffs and other painful actions as the burn rate skyrockets and future funding becomes scarce.
The list of emerging companies that have raised moderate Series A rounds is long: Lyft raised $ 6.2 million; Airbnb raised $ 7.2 million; Zoom raised $ 9 million; Uber raised $ 11 million; Confluent raised $ 6.9 million; HashiCorp raised $ 10.2 million; Snowflake raised $ 4.95 million. The list goes on.
These founders understood the value of a long-term mindset and the importance of building startups with the right values and structure so they can grow into lasting companies.
Founder dilution and investor ownership are part of a long game
While the founders are rightfully sensitive to dilution, it helps to understand that investors who commit to partnering with them realize that the company will raise many rounds of capital that follow what they are conducting.
As stewards of the capital raised by their limited partners (often pension funds, college endowments, and philanthropic institutions), investors are committed to providing returns and having a significant stake in a future liquidity event enables them to achieve this.