The startup investment market has changed. From the hottest year in startup venture capital history to a period of doom and gloom, how did we get to where we are today?
The following summary of TechCrunch’s coverage seeks to answer that question. We begin with a landmark series of stories that began last December, working through the beginning of the year to the most recent data from the VC ecosystem. Then we close with stories that have some tips. Sounds good? Go.
how we got to today
The shift in the market began last year, with stock market prices falling, prompting TechCrunch to start wondering if the ground was shifting under the feet of startups.
The era of ultra-rich software valuations may be behind us (December 2021)
After the venture capital goat roundup of 2021 (companies raised twice and even three times a year), it came as a surprise when public markets started turning bearish while the private market was still in bull mode. Our question ended up being answered with a resounding yes over time.
Will the latest sell-off finally change the way investors value startups? (January 2022)
In January, it was clear that something had changed. Now our question was how fast and where would the damage drop. Startups can operate outside the confines of public market sentiment, but the larger the gap, the less likely there are such different centers of gravity.
This is how venture capitalists have lowered revenue expectations for seeds through Series B (Jan 2022)
Alex Wilhelm took a look at data from Kruze Consulting to understand how startup growth rates were changing and how much venture capitalists expected in terms of earnings performance before raising a particular round. The essence? Things in January were still pretty hot. We included this particular entry to remind ourselves that although hindsight is clear, even during the market correction, there were signs pointing in the other direction.
3 views: How should founders prepare for a decline in startup valuations and investor interest? (January 2022)
TechCrunch went to work to find out just how much the startup fundraising market was changing. The data for the first quarter of 2022 ended up being somewhat well, but with the damage piling on more as the quarter progressed. In January, things were still pretty hot, even if the rumblings of uh oh They started to add up.
It’s not a startup reckoning, it’s a correction (February 2022)
By February, our own Natasha Mascarenhas was already beginning to name the market change, relying on the phrase “recorrection”. This was a clever way of signaling that we were going through a correction of a correction. First, startups hit the brakes when COVID landed and the economy froze; then, as 2020 and 2021 progressed, they corrected their stance toward maximum burn and maximum growth. By the second month of the year, it was clear that a new behavioral adjustment was making its way into the market.
So how much have things changed?
We have a lot on this topic, so we’ve picked and picked a bit. The following should provide a good look at our recent work to understand exactly where startups and their sponsors are on the map today.
It’s Pivot 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 article, Natasha talks about how early-stage startups are changing, before the downsizing, to be more cash-efficient, revenue-focused and risk-averse.
If early investors continue earlier, what will happen? (April 2022)
Natasha wrote about the mixed messages in startup land right now: early-stage investors are becoming more disciplined and cash-rich, but at the same time, early-stage investors are leaving sooner. Investors are pushing the founders to be lean, but at the same time, offering them $10,000 to take PTO for a week and try their hand at entrepreneurship. The article looks at how shifting priorities could force emerging fund managers to change strategy (or fragment their way to failure).
How much has venture capital slowed in the late stage? (April 2022)
The changing pace of the market is no joke, so TechCrunch has been busy trying to sort through the feedback data, seeking to paint a more accurate picture of the new normal. The gist is that late-stage trading is going through a seismic shift, while other levels in the starting series are a bit more stable, if not entirely healthy.
Consumer Fintech Business Revenue Falls Short of SaaS ARR (April 2022)
Part of the market’s shift in value from startups and their recently public brethren is the fact that many concerns received earnings multiples that didn’t fit their actual earnings profile. By that we mean that some software companies were valued as SaaS companies, even though they were not. Seeing those companies undo billions in valuation was a lesson that during tough times, many companies will get a valuation that doesn’t really fit. just notice that early that’s the hard part of the investment game.
This is how emerging company valuations fell in the first quarter of 2022 (May 2022)
We have seen new highs being reached in recent years and now valuations are falling. Alex Wilhelm looked at the 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 close, some notes on what to do in this changed world.
Cram downs are a test of character for VCs and founders (April 2022)
If it came down to it, would you pay to play? Now they are back as the economy is starting to turn around and investors are faced with this question once again. Steve Blank explains why a founder would agree to a cram-down and offers advice on what he 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 good of your startup. Marjorie Radlo-Zandi explains the importance of making sure you have enough money to fund your startup. Her clue will vary depending on what industry you’re in, but Radlo-Zandi will walk you through how to calculate this number and what to do if you get off track.
How to introduce myself: 6 investors discuss what they are looking for in April 2022 (April 2022)
Walter Thompson writes a timely and honest look at what matters to investors in today’s market. As he points out, Carta states that the number of seed deals funded between Q4 2021 and Q1 2022 fell by 41%. Dollar volume also fell, from $2.62 billion to $1.81 billion, a 31% decline. The survey brings together the insights of investors, including Global 500 CEO Christine Tao and Maveron partner Anarghya Vardhana, to understand what they are looking for when dollar slices shrink.
What am I worth now? (April 2022)
It’s probably the question that’s on everyone’s mind right now. As public market values get cut, how does that trickle down to the startup community and, more importantly, to you? This piece includes an applicable valuation framework and other factors that may be affecting its price. Depending on where you are, today’s timing could be an update, a reboot, or a full reckoning.