the venture capital market is slowing down, meaning early stage founders are looking for a smaller pool of money.
According to Carta, the number of seed deals funded fell 41% between Q4 2021 and Q1 2022, and dollar volume followed, from $2.62 billion to $1.81 billion, a 31% drop.
Don’t give up all hope: “You can still fund hopes and dreams, but only with smaller dollars,” Mayfield partner Arvind Gupta recently told MovieUpdates+.
But founding teams that close out of a fundraising round will have a shorter runway than they planned, meaning partnering with an investor who understands the company well enough to add value is even more important than it was a year ago.
“Often investors have an idea of whether a pitch is going anywhere within the first 15-20 minutes of a conversation.” Christine Tsai
Because a founder pitch is the first step on that journey, we conduct a series of interviews with active investors to learn more about what they’re looking for and how they prefer to be approached.
We also asked each of them to name a pro forma pitching practice that founders should retire from. Angel investor Marjorie Radlo-Zandi said entrepreneurs beautifying the size of their market are sabotaging themselves.
“Don’t be tempted to overestimate your market size and its infinite potential,” she said. “We call blatantly inflated numbers ‘hand waving’. Exaggerating makes you appear less credible to investors. Not all investors expect to invest in the next unicorn.”
Thank you so much to everyone who took part:
- Christine Tsai, CEO and Co-Founder, 500 Global
- Marjorie Radlo-Zandi, Angel, Launchpad Venture Group, Branch Venture Group
- Clelia Warburg Peters, managing partner, Era Ventures
- Anarghya Vardhana, partner, Maveron LLC
- Frederic Huynen, partner, and Wijnand Bekker, associate, HPE Growth
Christine Tsai, CEO and Co-Founder, 500 Global
What kind of investment opportunities are you looking for in Q3 2022?
We will continue to invest in many sectors and regions, as we have done over the past decade. A big advantage of this approach is that we can see trends on a global scale – we have often found that certain sectors are not considered “hot” in some regions, but in others are emerging and growing rapidly.
Putting the spotlight on an area we’re devoting more and more time to: web3. What is particularly striking here is that unlike industry innovation in the past, which can start in Silicon Valley and later spread to other countries, web3 innovation is happening everywhere and at the same time.
We are especially excited about the opportunities to further build web3 infrastructure and interoperability and create a more inclusive, equitable ecosystem for wealth creation on a global scale.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or some other method?
All of the above! We’ve invested in companies that come in through warm intros to the 500 Global network (especially from our existing founders), as well as companies that are pursuing cold outreach or have signed up on our website.
This is key to finding diverse teams — expanding our networks so we can discover great founders with diverse backgrounds and expertise.
Can you share one piece of advice that can help a budding founder stand out?
Take the time to make your pitch personal and connect with the other side of the table. So often meetings feel purely transactional and become a one-way conversation. Especially with the increase in virtual meetings, it is more difficult to say whether the investor is involved.
So you have to make sure they don’t fall out. When a founder takes the time to really understand what drives the investor and the meeting is a more lively conversation, it helps build trust and engagement both ways.
What happens after the meeting is also very important. Regardless of the investor’s decision, founders trying to keep in touch and build a relationship leave a lasting impression on me.
What is a traditional fundraising tactic that founders should remove from their toolkit – something that no longer works, but is still a pro forma practice?
When founders mention that their team has a “combined XX+ years of experience”. Founders often do this to compensate for the lack of experience individually, but this figure means nothing to me.
I’d rather see founders focus on what they do bring to the table and their big vision for the company. What they have done is not as important as what they will do.