Before You Fundraise, Here’s the Most Important Thing to Know About How Venture Capitalists Think

“I’m going to start raising money for my startup,” a student explained as she chatted with me at the end of one of my entrepreneurship classes. “You mentioned you’ve raised money for startups in the past. Before I begin fundraising, what’s the most important thing I should know about venture capitalists?”

The student surely wanted a constructive, actionable answer she could use to help her with the unfamiliar and complex process of fundraising. But she asked for my advice just as I’d finished a two-plus hour class in front of a bunch of Gen Z-ers. It’s an entire generation that learns best by watching 30 seconds video clips, so I was probably in the wrong mindset to answer such a complex question. Rather than giving her the thoughtful, detailed answer she needed, I gave something more akin to a pithy, tweetable quip. READ MORE

How To Raise Corporate Venture Capital

If you can remember back as far as I can, you might remember the good old days of raising capital. You’d load up your 10-slide pitch deck and visit numerous two- or four-story buildings on Palo Alto’s Sand Hill Road, hitting multiple potential investors in one day.

That’s how it was for Sterling Pratz’s first venture, Autonet Mobile. But as times have changed, Sterling takes another tack when pitching investors today. Not only does he craft pitches differently, but he approaches different targets: strategic investors. READ MORE

Convenience-focused startups adjust to tighter money, lower expectations

Years of zero interest rate policy (ZIRP) gave the world ambitious venture capital-stuffed companies that sought to make everyday tasks and chores as easy as the tap of a button. But the reality of those business models is much more modest now.

Why it matters: We were promised a new world of hyper-convenience while VCs dreamed of billions in investment returns.

Driving the news: Just in the past week or so, a number of those companies have entered new corporate chapters. READ MORE

3 Tips For VCs With Struggling Portfolio Companies

With VC investment remaining slow, especially for late-stage investment, we can expect higher than usual startup failure rates, which generally already average 30% of an investment firm’s portfolio.

When this happens, venture investors generally have two tactics to mitigate risk: Developing those portfolio companies with better chances of succeeding or abandoning those that are performing poorly, but helping them if you see they can survive. READ MORE

Adding Venture Debt As A New Strategy By Large Credit Firms And Technology-Focused Growth PE Firms

In my previous articles, I’ve written to a founder audience on venture debt for fast-growing businesses and how venture debt differs from traditional commercial bank offerings. In this article, I speak to large credit funds and growth PE firms looking to learn more about adding a venture debt capability to their existing platforms.

While venture equity has been the standard source of capital for technology companies, venture debt financings have grown over the last decade, from $8.1 billion in 2013 to $35.5 billion in 2022, according to PitchBook. READ MORE

China VC deals plunge, on track for worst pace in more than seven years

Slowing growth and geopolitical tensions are stifling the Chinese startup world that once spawned unicorns such as ByteDance and Didi, according to a PitchBook report Monday.

China’s economic rebound from the pandemic has slowed. U.S.-China tensions have spilled over to finance, dampening already subdued market sentiment. Chinese regulation in the last two years has also made it harder for companies to go public overseas. READ MORE

Questions every VC needs to ask about every AI startup’s tech stack

From fraud detection to agricultural crop monitoring, a new wave of tech startups has emerged, all armed with the conviction that their use of AI will address the challenges presented by the modern world.

However, as the AI landscape matures, a growing concern comes to light: The heart of many AI companies, their models, are rapidly becoming commodities. A noticeable lack of substantial differentiation among these models is beginning to raise questions about the sustainability of their competitive advantage. READ MORE

Bootstrapping vs. Seeking Venture Capital — How to Decide the Best Avenue for Your Business

Every person who's founded a business knows that financing your idea is one of the hardest but most important early steps. In fact, creating a stable financial nest for your new company might be the difference between a company that thrives and one that fizzles out.

There are two primary methods of financing: looking for venture capital and bootstrapping. Choosing which financing method you go with is a crucial decision that may have long-term impacts on your business. READ MORE

State of startup fundraising: Do you need venture capital?

Venture capital is a very specific asset class designed for a very specific purpose: generating exceptionally high returns for the limited partners who provide the capital to the VC firms to invest on their behalf. Limited partners require these high returns from venture to complement the rest of their portfolio, which is spread across lower risk investments. Thus, VCs are under pressure to find the moonshots that have the potential to drive these outsized returns.

You have to be in exceptional shape for this to be a viable path. The total addressable market (TAM) you aim for has to be enormous in order to capture a chunk of the market that is still meaningfully large enough for the VC math to pencil. READ MORE

Why There Needs To Be More Allyship Among Investors To Diversify Venture Capital

Anyone who pays attention to the world of investing knows of the disparity between different demographics of founders when it comes to raising. For example, women-founded startups got just 1.9% of all VC funding in 2022, TechCrunch reported, a figure that was down from the previous year. Founders of colour have also seen their share of funding decline from an already low starting point, according to research conducted by BLCK VC and Silicon Valley Bank. That’s an issue, not only because it means entrepreneurs receiving funding don’t represent society’s makeup, but also because it means VCs are highly likely to be missing out on the best deals — it’s proven that more diverse founders are more successful. READ MORE

A Rising Venture Capitalist’s Global Outlook

Our choices are influenced by our history—from how we engage in our environment to the relationships we build. Each investor’s decisions are based on their worldview, which is molded by their own environment.

I’m the grandson of an Indian farmer, was born in the U.S. and am an established Singapore venture capitalist. Each of these parts of my life has created a sense of being both an outsider and an insider. In today's interconnected world, the boundaries that once confined us are fading away, giving rise to a new era of global collaboration and innovation. READ MORE

The Deal Of A Lifetime: Why Private Equity Companies Need To Adopt AI

Generative AI is Silicon Valley’s new shining star, and private equity (PE) investments in AI startups have taken over Wall Street. However, the potential of AI for PE firms can be much more than just an investment outlay. Dealmaking within the PE industry requires significant intuitive and analytical understanding across multiple dimensions. These dimensions cut across people, products, competitive landscape and financial projections. READ MORE

A VC Explained the Biggest Mistake Entrepreneurs Make Pitching Startups — It Wasn’t What I Expected

I was invited to speak at a startup panel about fundraising, and, by some strange coincidence, I found myself sitting next to the first venture capitalist I ever tried to raise capital from. I couldn’t help but chuckle at the situation. There I was, in front of a room filled with hundreds of entrepreneurs, and I was going to explain how to raise money while sitting next to the first guy who rejected me.

To be fair, even though I recognized the VC, he surely wouldn’t have remembered me because our one and only conversation had taken place nearly 20 years prior. Heck, the only reason we even talked all those years ago was thanks to a mutual connection. But entrepreneurs never forget the first venture capitalist they pitch, so the sting of my rejection from this particular VC still felt as fresh as if it had only just happened a few days earlier. READ MORE

New SEC Private Equity Rules

On February 9, 2022, the Securities and Exchange Commission (“SEC”) proposed new rules under the Investment Advisers Act of 1940 regarding the regulation of private funds. A private fund is an investment company, usually a limited partnership, that does not solicit investments from the general public and meets one of the exemptions from being regulated under the Investment Company Act of 1940. The new rules were designed to provide “enhanced information about costs, performance, and preferential treatment,” and to “help an investor better decide whether to invest or to remain invested in a particular private fund, how to invest other assets in the investor’s portfolio, and whether to invest in private funds managed by the adviser or its related persons in the future.” READ MORE

Instacart's IPO price target delivers startups a dose of reality

Instacart's IPO is seen as a bellwether for public investors' demand for startups. So far, it's telling the entrepreneurial world what was already obvious—that revenue multiples of formerly VC-backed companies have cratered as investors lack faith in their future growth.

Instacart is targeting an IPO valuation of up to $9.3 billion on a fully diluted basis, 76% below its last $39 billion private market valuation and a fraction of what it would have received if the company had gone public in 2021. READ MORE

Being An Emerging Manager In The Current VC Environment

Almost 500 meetings. That is the figure cited by an acquaintance of mine when we were talking about the number of conversations it took for him to raise his first venture capital (VC) fund. The explosion of seed funds over the last three years means limited partners (LPs) are flooded with options, making it hard to stand out. This leads to emerging managers taking anywhere from six to 18 months to raise the necessary funding.

In the present down market, I am seeing the flight-to-safety mentality dominating. One large foundation made it clear to me that their appetite is only for brand-name funds that are perceived as lower risk. LPs do not want to take the risk on emerging managers in this market. Understandably then, raising venture capital from family offices is now the primary target of 46% of emerging managers. READ MORE

Setting a valuation: Why this VC prefers priced rounds to SAFEs and convertible notes

Startups typically receive their first formal round of funding from friends, family and angel investors. Depending on the startup’s funding needs, the investment can range from a few hundred thousand dollars to a few million. This funding is critical for scaling business operations and building a customer base.

Seed rounds or friends and family rounds often are completed using SAFEs or convertible notes. The benefit of these instruments is that both the founders and the early stage investors can “kick the can” down the road in terms of setting a valuation for the startup. Unlike a preferred stock financing (sometimes called a “priced round”), SAFEs and convertible notes do not require the parties to put a specific valuation on the startup — even if there is a “valuation cap.” READ MORE