The venture capital market is slowing down, which means early-stage founders are chasing a smaller pool of money.
According to Carta, the number of seed deals funded between Q4 2021 and Q1 2022 fell 41%, and dollar volume followed suit, dropping from $2.62 billion to $1.81 billion, a 31% decline.
Don’t abandon all hope: “You can still finance hopes and dreams, but just with smaller dollars,” Mayfield Partner Arvind Gupta recently told TC+.
But founding teams that close a fundraising round will find themselves with a shorter runway than they planned on, which means partnering with an investor who understands the business well enough to add value is even more critical than it was a year ago.
“Oftentimes, investors have a sense of whether a pitch is going to go somewhere within the first 15-20 minutes of a conversation.” Christine Tsai
Because a founder’s pitch is the first step on that journey, we’re running a series of interviews with active investors to learn more about what they’re looking for and how they prefer to be approached.
We also asked each of them to name a pro forma pitch practices that founders should retire. Angel investor Marjorie Radlo-Zandi said entrepreneurs who embellish the size of their market are sabotaging themselves.
“Don’t be tempted to overstate your market size and its infinite potential,” she said. “We call blatantly inflated numbers ‘handwaving.’ If you exaggerate, you’ll appear less credible to investors. Not all investors expect to invest in the next unicorn.”
Thanks very much to everyone who participated:
- Christine Tsai, CEO and founding partner, 500 Global
- Marjorie Radlo-Zandi, angel, Launchpad Venture Group, Branch Venture Group
- Clelia Warburg Peters, managing partner, Era Ventures
- Anarghya Vardhana, partner, Maveron LLC
- Frederic Huynen, partner, and Wijnand Bekker, associate, HPE Growth
Christine Tsai, CEO and founding partner, 500 Global
What kind of investment opportunities are you looking for in Q3 2022?
We will continue to invest across many sectors and geographies, as we have been for the past decade. A big advantage of this approach is that we can spot trends happening at global scale — we’ve often found that certain sectors aren’t considered “hot” in some regions, but they’re emerging and growing fast in others.
Shining a spotlight on one area we’ve increasingly spending more time on — web3. What’s particularly notable here is that unlike sector innovation in the past that may start in Silicon Valley and spread out to other countries later, web3 innovation is happening everywhere and simultaneously.
We are particularly excited about opportunities to further build web3 infrastructure and interoperability and create a more inclusive, equitable ecosystem for wealth creation at a global scale.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
All of the above! We’ve invested in companies that come in via warm intros from the 500 Global network (especially from our existing founders), as well as companies that pursued cold outreach or applied on our website.
This is key to finding diverse teams — expanding our networks such that we can discover great founders with diverse backgrounds and expertise.
Can you share one piece of advice that can help a first-time founder stand out?
Take the time to make your pitch personal and connect with the other side of the table. So often, meetings feel purely transactional and become a one-way conversation. Especially with the increase in virtual meetings, it is more difficult to tell whether the investor is engaged.
So you should ensure that they aren’t tuning out. When a founder takes the time to really understand what makes the investor tick and the meeting is a more lively conversation, it helps to build trust and engagement both ways.
Also, what happens after the meeting matters a lot. Regardless of the investor’s decision, founders that try to stay in touch and build a relationship leave a lasting impression on me.
What’s one traditional fundraising tactic that founders should remove from their toolkit — something that no longer works, but is still a pro forma practice?
When founders mention that their team has a “combined XX+ years of experience.” Founders often do this to make up for the fact that they don’t have a lot of experience individually, but this figure doesn’t mean anything to me.
I would rather see founders focus on what they do bring to the table and their big vision for the company. What they have done is not as important as what they will do.
