More than 102,000 workers in US-based tech companies have already been laid off due to massive job cuts in 2023, according to Crunch base. But for early-stage startups, the outlook isn’t as bleak as the headlines make out — conversely, there’s a huge opportunity for sloppy founders in a recession. A falling market can offer investors better entry prices, more time for due diligence, and greater long-term returns; Early-stage venture capital should be more than willing to bet on big entrepreneurs in 2023.
Early stage venture capital financing is unique. Unlike a Series B or C round, there isn’t a lot of data and stats to review. Therefore, investors must rely on the founders to convince them that there is a market for their product and that they are the founders to make it happen. As we enter a market downturn, finding and cultivating investment worthy founders is more important than ever. Whether or not to invest depends on the mindset, ability and motivation of the founder or management team.
Beginning investors should choose entrepreneurs with a growth mindset. It’s that simple.
Look for founders with a true entrepreneurial mindset
Beginning investors should choose entrepreneurs with a growth mindset. It’s that simple. Entrepreneurs who have a strong desire to learn, embrace challenges and are not easily knocked down, persevere in the face of setbacks, learn from criticism, surround themselves with experts in their field (and trust them), and find lessons and inspiration from other people’s successes.
As a fund, we want outsized returns. To achieve those outsized returns, we need to aim for a significant total addressable market and challenge to solve. For an investment to support a company’s bottom line, we must invest in a founder who can stay on track through inevitable challenges. You also need to be sure that the founder you are investing in wants the same things and will not take the initial exit offer.
In early-stage companies, the focus or position can change as often as market conditions and the demand for the solution. That is why, while the size of opportunities is important, it is not the determining factor. Early-stage investors must rely on the entrepreneurial mindset to get the results; numbers on a spreadsheet cannot.
While a founder’s education and work experience play a role, an entrepreneurial mindset is essential. A willingness to take a risk or take a non-traditional path and ultimately learn from it are essential qualities. So is perseverance and perseverance. Many founders we work with have previous startup and founder experience, including some failures. A good entrepreneur is an outsider; they see things others don’t and are willing to go to any lengths to support those beliefs.
Questions we ask when we examine a founder’s mindset include:
- How have you led your team through a crisis before?
- Guide us through a smooth/heavy day in your company. What went right/wrong and why?
- How do you motivate your team to reach that next big milestone?
