Everyone loves an outsider, which is why investors and tech journalists are so fond of discussing startups founded during the Great Recession of 2008, like Airbnb, Uber, WhatsApp, Mailchimp, Square, and Venmo.
It’s possible that your pre-seed, pre-revenue startup could similarly defy gravity, but in July 2022 it will be difficult to find many investors willing to invest in a company that has no traction.
If your company is too young to be rated, convertible bonds could be a viable way to secure early financing. Essentially short-term debt that turns into equity, these notes can be a boon to companies nearing their tipping point.
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Julie Gionfriddo, Director of Advisory Services at Fiondella, Milone & LaSaracina LLP, has written an overview for TC+ that weighs the pros and cons of fundraising with convertible bonds, along with some strategies for getting started.
There are some obvious advantages to raising early money this way: For example, “they don’t usually have controlling or board seats.”
However, debt securities may also entail risks such as B. Too low valuation caps, insufficient raising of capital or other poor planning that can bring investors more equity than you intended.
Conclusion: If your company is on the cusp of an opportunity, convertible debt financing could be a way forward, but only if you have a realistic valuation and a plan to achieve it.
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Fintech investment, once a major driver of global venture activity, is slowing around the world
Compared to the first quarter of 2022, fintech funding declined 33% to $20.4 billion across 1,225 deals last quarter, according to CB Insights and PitchBook. Year over year, fintech startups received 46% less funding than in Q2 2021, yet the sector still received nearly 20% of all VC dollars.
Seeking insight into the slowdown, Mary Ann Azevedo, Natasha Mascarenhas and Alex Wilhelm looked at activity in the US and globally: what lies ahead in terms of layoffs, marketing spend and consolidation?
“It comes as no great surprise that fintech has played a large role in the venture boom that is now behind us,” they write. “What’s really going on out there?”
Record VC fundraising isn’t necessarily good news for first-time 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 the first half of 2022, but with more and more investors waiting on the sidelines, where is that money going?
Reporter Rebecca Szkutak looked at the numbers and found that megafunds accounted for most of the rise. “Nearly two-thirds of the venture capital has been raised by just 30 funds,” she said, a possible sign that VCs are bolstering their reserves “ahead of a prolonged downturn.”
Mark-to-market to get a realistic valuation and improve your fundraising opportunities
If your startup has less than 12 months of runway, here’s even more worrying news: Before you can raise any additional money, you may need to lower your rating.
Ascento Capital founder Ben Boissevain shared with TC+ a mark-to-market overview that can help founders recalibrate their expectations as they approach their next round or potential acquisition.
“Valuations are ultimately driven by supply and demand in the M&A market,” he writes.
“The higher you expect your startup to be valued, the less likely it is that the deal will go through.”
As fundraising becomes more difficult, founders should ask investors for a flat round
There are worse things than accepting a lower rating: like firing every employee before they sell their used office furniture on Craigslist. That would be worse.
Investors understand that entrepreneurs are rocked 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 flat or down funding rounds now.
“Rather than delaying this conversation, I strongly encourage startups in this situation to reach out to their investors now and secure their Series A2 round to bolster their balance sheets,” said Cohen.
“Better to go to the well and get what you need to weather this volatility.”
You may need more than one pitch deck
A presentation deck lends itself to a live or in-person pitch, but founders don’t always have the opportunity 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 exploit multiple opportunities:
- The teaser deck.
- The send-ahead deck.
- The presentation deck.
- The Abandoned Deck.