Are investors investing?
We caught up with Brendan Baker, Partner @ Ridge Ventures to talk about a burning question on many startup’s minds … Are Investors Investing? Read below for Brendan’s take and suggestions for startups looking at fundraising in the future.
State of Affairs
We’re in a period of shock but there are early signals that we’re starting to understand what the next 12-18 months might look like.
Ridge Ventures’ 4th fund is $150M with only 20% deployed. We are still looking at pitches and probably have seen more activity in the last few weeks. But the difference is good versus great. We’re looking for real standout opportunities. Valuations have been inflated so we’re looking at some of the opportunities that we couldn’t afford previously. It’s likely that valuations will be down 25-30%, but ultimately the market sets valuations.
Should I be Fundraising?
If you need to be fundraising, focus exclusively on the process. Spend 95% of your time on the fundraise and have a co-founder focus on the business. Try to bracket your fundraise if you can -- set an end date and be explicit. Then run a really tight process.
Instead of saying ‘here is what we’ve done” and showing that you’re credible, focus on being notable and different. Instead of talking about the vision, focus on executing really well.
That all said, if you can delay conversations for a week or a month or a quarter, that will help as things will get better as time passes.
Prioritize and Qualify Investor Targets
Make sure investors have money and are active. Check out Crunchbase and Pitchbook if you have access to see when was their last fundraise. Build leads through other funds that have raised recently. If they raised prior to 2017, I would de-prioritize them right now.
It’s easy to get a first meeting, but if they are taking a second meeting, I think you can take that as a good sign. Don’t waste anyone’s time so feel free to ask “are you actively writing checks” and then don’t listen to their answer - listen to their hesitation.
And do the work for your investors. It will help differentiate you from others.
Helping Portfolio Companies Navigate
We’ve spent 100’s of hours with our portfolio companies to revise their plan. Everyone is waiting to figure out where the bottom is, and that includes venture funds that will be raising capital in the next one to two years.
Cutting costs is critical and we’re seeing most cut by 15%. It’s a bottom’s up planning process. Ask questions and look for what is productive and what is not. Look at what services and leases can be cut. Now is a good time to look at the under-performers and who is stepping up and going to put in the hard work needed.
What About Marketing Spend?
It’s really hard for anyone to be marketing right now. Most companies can’t be “selling”. Be careful and optimistic and consider being more neutral. We are triple checking any message that we’re putting out there right now to be sensitive.
It is easy to calculate what marketing spend is working. My default would be to cut to zero and then test.
What you can be doing though is listening to your customers. Find out what are their pain points. Communicate your product roadmap. If you’re B2C, have calls with early adopters. Look at the data and people’s behavior as it’s changing week over week. But the data is getting more reliable every week and you can communicate that into your sales and product team. Build systems to surface the data and re-learn very quickly.
Communicating to Investors
When it comes to communicating with your investors, we suggest you are honest and explain how business is doing - don’t be overly optimistic. Investors want to see that you’re a good leader who has a grasp on things and can navigate your team through the period ahead. Don’t be bashful that sales have been hit.
Many startups are doing layoffs and investors will look to see how those are being executed. Are you doing it in a compassionate way? Did you communicate with the rest of the team? Real leadership includes being clear and showing courage during the good and the tough times.
This conversation was brought to you as part of Connection Silicon Valley’s #CollaborativeCoffee series. We serve up informative and interactive discussions with Bay Area leaders throughout the week.
