Champ Suthipongchai is a General Partner at Creative Ventures, a market-driven Deep Tech venture capital firm based in Oakland, CA. As VC firms in the U.S. are sitting on a record high dry powder reserve of $311 billion, terms like “unicorpse” are being thrown around as high-growth companies face funding challenges. The rest of the startup economy is also struggling to raise money, with a finish line in sight for the rate hikes that began two years ago. The pressure to deploy funds is there, but the floodgates may not open anytime soon.
To navigate the current VC landscape, founders are advised to do more with less. Instead of being stubborn about valuations, they should be quick to adapt to reality, laying off quickly if needed and adjusting expectations and targets to see results. It’s important to remain disciplined, be creative in hitting milestones, and adapt to the current environment in order to thrive during this challenging period.
VC expectations of companies are higher than ever, with funding dropping between 2022 and 2023. VCs are under scrutiny from LPs with access to credit products offering competitive rates and shorter return horizons, leading to the expectation of double the traction with half the resources. Companies now need to deliver more than ever before, with each round being about half the size it used to be.
Founders are advised to focus on the story before traction when pitching to VCs, as numbers alone may not be enough to impress. By selling their vision and convincing VCs of the opportunity at hand, founders can gain the interest and investment needed to succeed. Traction should be used to de-risk the company by presenting hypotheses that prove product-market fit or growth strategy, making the numbers meaningful and impactful.
Iterating on pitch practice with a group of “safety VCs” is recommended before approaching ideal VCs, allowing for refinement of the pitch and story. Engaging steadily with 8-10 ideal VCs over time, instead of all at once, can help build momentum and interest. If momentum is lost, forming a second cohort and repeating the process is essential. Adaptability and continuous iteration in the pitching process are key to securing investment in the current VC environment.
While the future of funding remains uncertain, it is crucial for founders to operate as if the floodgates will never open. Survival should be the top priority, trimming excess and doing more with less to sell traction through story. The dry powder won’t be hoarded forever, and the goal is to be prepared and resilient when it is finally deployed. Consulting with a licensed professional for advice on specific financial situations is recommended.
