Gordon Pan, the president of Baird Capital, provided insights during a VIP reception sponsored by Baird in advance of the GeekWire Awards, expressing optimism for the second half of the year for startup founders. He predicted a rebound in funding and M&A deals, attributing this to factors such as pent-up demand from investors. Pan emphasized the importance of growing with discipline, focusing on fundamental metrics including growth rate, net revenue retention, and capital efficiency when considering potential investments.
Jonathan Sposato, the Seattle angel investor and GeekWire chairman, interviewed Pan on key attributes that top firms like Baird Capital look for when investing in new companies. Pan reiterated the importance of backing strong management teams, looking at growing industries with good trends, and investing in companies with differentiated products or services. He highlighted the significance of financial results reflecting the strength of a company’s management, marketing, and product in attracting investment.
Pan discussed the shift in the current environment from growth at all costs to growth with discipline, emphasizing capital efficiency. He outlined three key metrics that Baird Capital focuses on, including growth rate, net revenue retention, and the rule of 40, which measures capital efficiency. Pan advised startup CEOs to focus on these metrics to build an attractive business model that will interest potential investors and partners in further growing the business.
Pan addressed the current fundraising environment, acknowledging its difficulties and challenges. He noted the abundance of capital available in the venture capital and private equity industries, with $300 billion in dry powder for venture capital and $1 trillion for private equity. Despite this, he highlighted the misalignment between buyer and seller expectations in terms of valuations, which has hindered market unlocking. However, Pan expressed optimism that the market is starting to shift, with momentum expected to continue into the second half of 2024 and 2025.
Pan advised entrepreneurs to focus on getting their fundamentals right, as he believes the market is moving in their favor. He stressed the importance of finding the right partner to help build the business to the next level, potentially leading to taking it public. Pan shared his prediction that the back half of 2024 and 2025 will see strong investment and M&A markets, encouraging entrepreneurs to prepare for this anticipated market shift. He reiterated the importance of building fundamental value in the business and finding the right partner to leverage the changing market conditions effectively.
Overall, Pan’s insights provided a roadmap for startup founders and CEOs navigating the current challenging fundraising environment. By focusing on key metrics such as growth rate, net revenue retention, and capital efficiency, entrepreneurs can position their companies as attractive investment opportunities. Pan’s positive outlook for the future, coupled with his predictions for a rebound in funding and M&A deals, offer encouragement and strategic guidance for entrepreneurs to thrive in the evolving market landscape.
