The startup investment market has changed. From the hottest year in venture capital startup history to a period of pessimism, how did we get to where we are today?
The following summary of MovieUpdates coverage seems to answer that question. We begin with a historic series of stories that began last December and continues through the beginning of the year until we reach the latest data from the VC ecosystem. Then we close with stories with a few tips. Sounds good? Let’s go.
How did we get today
The change in the market started last year, with stock prices falling that left MovieUpdates wondering if the ground under the feet of startups is shifting.
The era of ultra-rich software valuations could be behind us (Dec 2021)
After the venture capital goat rodeo in 2021 — companies raised two and even three times a year — it came as a surprise when public markets started to turn bearish while the private market was still in full swing. Our question was answered with a resounding yes over time.
Will the latest sell-off finally shake up the way investors value startups? (January 2022)
In January, it was clear that something had changed. Now our question was how quickly and where the damage would land. Startups can operate outside the confines of public market sentiment, but the wider the gap, the less likely such different centers of gravity exist.
This is how much VCs have lowered seed revenue expectations through Series B (January 2022)
Alex Wilhelm took a look at Kruze Consulting’s data to understand how startup growth rates changed and how much venture capitalists expected in terms of revenue performance before increasing a given round. The core? In January it was still warm enough. We include this particular entry to remind ourselves that while it is obvious in hindsight, even during the market correction there were signals pointing in the other direction.
3 Views: How should founders prepare for a decline in startup valuations and investor interest? (January 2022)
MovieUpdates set out to find out how much the startup fundraising market was changing. Data for the first quarter of 2022 was somewhat fine, but with the damage piling up as the quarter progressed. In January it was still quite warm, even when the rumbling of oh oh started to rise.
It’s Not a Startup Settlement, It’s a Re-correction (February 2022)
In February, our very own Natasha Mascarenhas already started naming the market change, leaning on the phrase ‘re-correction’. This was a funny way to note that we were going through a correction of a correction. First, startups put the brakes on when COVID landed and the economy froze; as 2020 and 2021 progressed, they corrected their stance toward maximum combustion and maximum growth. By the second month of the year, it was clear that a new behavioral adjustment was making its way through the market
So how much have things changed?
We have a lot on this topic so we picked some and chose. The following should give a good idea of our recent work understanding where startups and their funders are on the map today.
It’s the running season for early stage startups (March 2022)
Layoffs may be one of the clearest signs that a startup is under pressure, but it’s not the only one. In this piece, Natasha talks about how early-stage startups – in anticipation of budget cuts – are turning to be more cash-efficient, revenue-oriented, and risk-averse.
What happens if the first investors move on earlier? (April 2022)
Natasha was writing about the mixed messages in startup land right now: early stage investors are getting more disciplined and cash rich, but at the same time the earliest investors are going earlier. Investors are pushing founders to be slim, but at the same time offering them $10,000 to take the PTO for a week and try their hand at entrepreneurship. The piece looks at how changing priorities can force emerging fund managers to change strategies (or shred their path to failure).
To what extent has late-stage venture capital slowed down? (April 2022)
The changing pace of the market is no joke – so MovieUpdates has been busy sorting the data from the commentary, looking for a more accurate picture of the new normal. The gist is that late stage deal making is going through a seismic shift, while other tiers of boot series are a bit more stable, if not completely healthy.
Consumer fintech trading revenues fail to meet SaaS ARR (April 2022)
Part of the market shift regarding the value of startups and their recent public brethren is the fact that many concerns were getting revenue multiples that didn’t match their actual revenue profile. By that we mean that some software companies were valued as SaaS companies, even though they weren’t. It was a lesson to see how those companies rose above billions in valuations, that was a lesson that in hot times many companies will get a valuation that really doesn’t fit. It’s just noticing that early that’s the hard part of the investment game.
This is how far startup valuations fell in the first quarter of 2022 (May 2022)
We have seen new highs in recent years and now valuations are falling. Alex Wilhelm looked at Carta data to see where. Seed rounds are down about 5% from Q4 2021 to Q1 2022. Series A and B are down about 25% and 8% respectively from Q3 2021 to Q1 2022.
To conclude, some notes on what to do in this changed world.
Cram-downs are a character test for VCs and founders (April 2022)
When it came down to it, would you pay to play? Now they are back as the economy begins to change and investors are once again faced with this question. Steve Blank explains the rationale for why a founder would agree to a prop-down — and advice on what they could do instead.
Does your startup have enough runway? 5 Factors to Consider (April 2022)
If you’re not good at budgeting, it’s time to learn for the sake of your startup. Marjorie Radlo-Zandi explains the importance of making sure you have enough money to fund your startup. Your runway will depend on the industry you’re in, but Radlo-Zandi explains how to calculate this number and what to do if you run off the runway.
How to pitch me: 6 investors discuss what they’re looking for in April 2022 (April 2022)
Walter Thompson provides a timely, honest look at what investors care about in today’s market. As he notes, Carta claims that the number of seed deals funded between Q4 2021 and Q1 2022 fell by 41%. Dollar volume also declined, from $2.62 billion to $1.81 billion, a 31% drop. The research brings together insights from investors, including 500 Global CEO Christine Tao and Maveron partner Anarghya Vardhana, to understand what they’re looking for as dollar slabs shrink.
What am I worth now? (April 2022)
It is probably the question on everyone’s mind right now. How does that trickle down to the startup community, and more importantly, to you, while lowering public market values? This piece contains an appropriate valuation framework and other factors that may affect your price. Depending on where you are, today’s moment could be a refresh, a reset, or a full reckoning.