Tonight’s thread is on valuations. It’s been a while since I’ve done a State of the Market thread.
More here >>
More here >>
1) In general, valuations are up globally. A lot more bifurcation in some locations than others.
But this should not be conflated w ease of fundraising.
But this should not be conflated w ease of fundraising.
2) If you feel like fundraising is still hard despite what you read in the press, it’s because it IS STILL HARD for many ppl.
That being said, to level set, compared to say 2009, raising something - anything - is easier now than then. It’s all relative.
That being said, to level set, compared to say 2009, raising something - anything - is easier now than then. It’s all relative.
3) In many ways one thing that is hard(er) about fundraising now is that there are just so many companies pitching. In part because we live in a global world post pandemic and ppl can pitch on video conf all day.
4) So investors have to prioritize differently now. And investors are working a LOT and getting burnt out too.
5) All of this is to say that it’s hard to get attn. Investors are just so busy it’s hard to get a pitch looked at. This is where persistence matters.
6) Now there are some ppl who are being prioritized and are having an easy time in this market.
As usual, if you’re well-networked you might have a ton of VCs trying to pre-empt your round.
Or if you’re working on something hot like web3.
As usual, if you’re well-networked you might have a ton of VCs trying to pre-empt your round.
Or if you’re working on something hot like web3.
7) But outside of that, it’s more or less business as usual. We’re in a good market, so just keep knocking on doors.
There are also so many more angels and crowdfunding platforms and alternative financing sources that are options.
There are also so many more angels and crowdfunding platforms and alternative financing sources that are options.
8) Here’s where I’m seeing ppl being thrown for a loop though.
Because everyone is reading about how frothy this market is, it can also sometimes cause problems.
Because everyone is reading about how frothy this market is, it can also sometimes cause problems.
9) I have a number of portfolio founders who believe they can raise at $X post. And the notion of $X post is driven by some friend who was able to raise at that valuation. Or some Angel telling them that.
10) And that may be true.
But here’s the thing. Let’s say you go to the mkt w that high cap of $X & you raise $300k from angels who don’t know what is market. But you really want to raise $2m & now you’re stuck. A lot of VCs are saying no and you can’t raise from enough angels.
But here’s the thing. Let’s say you go to the mkt w that high cap of $X & you raise $300k from angels who don’t know what is market. But you really want to raise $2m & now you’re stuck. A lot of VCs are saying no and you can’t raise from enough angels.
11) Now what? This is the situation I’m seeing SO MANY founders in.
A real example - someone had an interesting idea and strong team for that idea and was pitching at $12m post. A couple of angels committed to them. I declined to meet because we would be so off in valuation.
A real example - someone had an interesting idea and strong team for that idea and was pitching at $12m post. A couple of angels committed to them. I declined to meet because we would be so off in valuation.
12) Now wks later (presumably after trying to meet w every investor they can) they have come back and are raising at $6.5m post and have a vc leading at that price.
13) This is a tough spot to be in because many VCs won’t even propose terms that are so far off.
They got kinda lucky.
The better way to have approached this would have been to have tranched this.
They got kinda lucky.
The better way to have approached this would have been to have tranched this.
14) I’ve written about the tranche strategy before here:
https://twitter.com/dunkhippo33/status/1404517581290049538
15) The takeaway here is that yes some teams can get crazy valuations in this mkt. But that’s ~20% of teams.
And maybe you’ll be one of those teams that is top 20% but there is severe downside risk if you price your round wrong. You may jeopardize your raise altogether.
And maybe you’ll be one of those teams that is top 20% but there is severe downside risk if you price your round wrong. You may jeopardize your raise altogether.
16) And that can be ok if you don’t need the money. Maybe you take that risk. But if you do need the money, then really really recommend the tranche strategy.
17) The other interesting thing is that in this mkt you have to stand out even at the deck level. In other words, your idea has to stand out.
That’s easier to do if you’re doing something super unique and new. Like in space. Or crypto.
That’s easier to do if you’re doing something super unique and new. Like in space. Or crypto.
18) So you may be an amazing team but I’m seeing a lot of bifurcation in valuation based on sexy ideas.
You could be an awesome team but it’s hard to get a mtg in this climate. That is frustrating for sure but that’s another factor in this mkt around valuation.
You could be an awesome team but it’s hard to get a mtg in this climate. That is frustrating for sure but that’s another factor in this mkt around valuation.
19) tl;dr market is great. Never been both easier & harder to pitch any investor you want. Persistence is key because investors are just so busy w so many ppl pitching. 20% of cos will get a frothy valuation - don’t shoot yourself in the foot before you know if you’re one of them
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