Time To Armor Up — A New Era Of Fundraising Is Upon Us

We guide a lot of fundraises. And we see them across a wide spread of geographies, domains, and stages. 125 startups. 300+ raises in total. $1.5B+ in total capital.

We’ve worked with startups ranging from Seed stage med-tech in one corner of the world to growth-stage fintech in another. Our founders range from first-timers in Tel Aviv to veteran operators in the Bay Area. I’m seeing new patterns worldwide. And if the patterns hold, the way founders approach fundraising will need to shift.

Here is my simple thesis:

The spread between what growth-stage founders believe their companies are worth versus public company comps has not been this wide in 20 years.
Seemingly every founder has received the same advice — run lean, delay the next round, and (if feasible) push to profitability.
However, after ten years of prioritizing growth over positive cash flows, that change in direction will be slow to adopt; most startups will need more capital.
Fundraising leverage has shifted back to investors, as they have longer LP funding cycles than growth-stage startups have runway.
Startups are now (comparatively YoY) cheap, and terms will be decidedly more investor friendly.
That has encouraged private equity to come down the market as they are testing if they can get PE pricing for venture returns.

So what does this all mean for startups? It’s time to armor up.

Founders from the last decade are all children of summer. The capital was easy. Raising money required just weeks, diligence was light, and negotiations were gentle. But winter has arrived. Valuations, round sizes, and terms have all shifted dramatically in investors’ favor.

In the last few months, a number of our late-stage Enjoy The Work companies have raised rounds between $20M-$50M. Each one was a slog. Each one took longer than anticipated. Each raises flirted with failure. Each one involved negotiations that were anything but straightforward. And each one had PE competing with venture firms to win the deal.

This only reinforces for me that in the year ahead.

— Raising capital will take comparatively far longer

— Diligence will be far more intense with far more financial forensics

— Negotiations will be more adversarial (re-trading will be more common)

What does armoring up involve? Four thoughts:

Prioritize positive unit economics and have a clear path to break even. Finding a way to raise from desire rather than necessity moves leverage back to the founder’s favor.
Raise inside capital if it’s available; a healthy balance sheet will deter predatory behavior.
Consider a banker. I know this is controversial. Engaging a banker for primary raises has long been seen as a signal of weakness, not strength. But I think that prejudice is worth re-examining. A great banker (of which there are only a few) is the definition of founder armor. They can expand your investor pipeline, clean your data room, and win difficult negotiations.
Learn how the best founders fundraise. There are ways to raise your game. There are those who have mastered fundraising and are eager to share that knowledge with the ascending population of growth-stage founders.

But what feels most important to me is for founders to accept that the fundraising tactics of the last decade may not work in the years ahead.

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