Everyone loves an underdog, which is why investors and tech journalists love to talk about startups launched during the Great Recession of 2008, such as Airbnb, Uber, WhatsApp, Mailchimp, Square, and Venmo.
It’s possible that your pre-seed, pre-income startup can defy gravity in the same way, but in July 2022 it will be difficult to find many investors willing to bet on a company with no traction.
If your company is too young to be valued, convertible bonds can be a viable way to secure early financing. In fact short-term debt that converts to equity, these bonds can be a boon for companies approaching their tipping point.
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Julie Gionfriddo, director of advisory services at Fiondella, Milone & LaSaracina LLP, wrote an overview for TC+ weighing the pros and cons of convertible fundraising, along with some strategies for getting started.
Raising money early in this way offers some clear benefits: for example, “they usually don’t have control or board seats.”
However, Notes can also carry risks such as setting valuation limits too low, raising insufficient capital, or other poor planning that could bring investors more equity than you intended.
Bottom line: If your company is on the cusp of an opportunity, convertible bond financing can be a solution, but only if you have a realistic valuation and a plan to achieve it.
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Editorial Manager, londonbusinessblog.com+
Once a key driver of global venture activity, fintech investments around the world are slowing
Compared to the first quarter of 2022, fintech funding fell 33% in the last quarter to $20.4 billion across 1,225 deals, according to CB Insights and PitchBook. Year over year, fintech startups received 46% less funding than in the second quarter of 2021, yet the industry still received nearly 20% of all VC dollars.
Looking to understand the slowdown, Mary Ann Azevedo, Natasha Mascarenhas, and Alex Wilhelm looked at US and global operations: What’s in store for layoffs, marketing spend and consolidation?
“It’s no great surprise that fintech has played a major role in the business boom that is now behind us,” they write. “What’s really going on out there?”
Record VC fundraising isn’t necessarily good news for budding fund managers
In the first six months of 2021, PitchBook reported that US-based venture capital firms raised $74.1 billion. That amount rose to $121.5 billion in H1 2022, but as more investors wait on the sidelines, where does that money go?
Reporter Rebecca Szkutak looked at the numbers and found that mega funds are responsible for most of the increase. “Nearly two-thirds of the venture capital was raised with just 30 funds,” she found, a potential sign that VCs are bolstering their reserves “in anticipation of a longer downturn.”
Mark-to-market to get a realistic valuation and improve your fundraising chances
If your startup has less than 12 months of runway, here’s more worrying news: Before you can raise extra money, you may need to lower your valuation.
Ascento Capital founder Ben Boissevain shared a mark-to-market overview with TC+ that can help founders adjust their expectations as they approach their next round, or potentially an acquisition.
“Valuations are ultimately determined by supply and demand in the M&A market,” he writes.
“The higher you expect your startup’s valuation to be, the less likely the deal will go through.”
As fundraising gets harder, founders should ask investors for a flat round
There are worse things a founder can do than accept a lower rating: for example, fire every employee before you sell your used office furniture on Craigslist. That would be worse.
Investors understand that entrepreneurs are ravaged by macroeconomic events, but like cash, their patience and empathy are finite resources. That’s why Matt Cohen, founder and managing partner of Ripple Ventures, says founders should start asking for fixed or downside funding rounds now.
“Rather than delaying this conversation, I strongly encourage startups in this situation to approach their investors now and secure their Series A2 round to bolster their balance sheets,” said Cohen.
“It’s better to go to the source once and get what you need to get through this volatility.”
You may need more than one pitch deck
A presentation deck is suitable for a live or personal pitch, but the founders don’t always have the chance to be in the room where it happened, as the song goes.
With that in mind, Haje Jan Kamps shared his personal best practices for creating decks that can be used to take advantage of different opportunities:
- The teaser deck.
- The forward deck.
- The presentation deck.
- The lagging deck.
- 1 Once a key driver of global venture activity, fintech investments around the world are slowing
- 2 Record VC fundraising isn’t necessarily good news for budding fund managers
- 3 Mark-to-market to get a realistic valuation and improve your fundraising chances
- 4 As fundraising gets harder, founders should ask investors for a flat round
- 5 You may need more than one pitch deck