Josh Merrill’s Post

Founder liquidity is the practice where founders sell a portion of their shares during a funding round. It allows founders to reduce risk and secure personal financial stability while continuing to build the company with a fresh influx of venture capital. The practice is often kept secret because it undermines the narrative of the founder who is 'all-in'. It might change how startups are perceived and valued if it were widely known that founders could de-risk their financial position while their employees remained all-in. #vc #startups #strategy https://lnkd.in/gNvfk2bP

🤔 Startups are hurting, with a huge fall in VC money in 2023. Worse, late-stage VC investments were down 76% to 92% from the peak, too. Down rounds are now commonplace. See below. The reality is that SOME deals are getting done - but the terms SUCK and founders are getting squeezed out. VC's are exercising their power to protect their money. VC's are also increasingly trying to get out of investments they've already made - unscathed. Will 2024 be better for VC's and founders? I doubt it. YES - great ideas with great founders (i.e. proven and experienced founders!!!) might still be able to raise money. But, the terms will be a LOT worse than they were in 2020-2022...and will make founders think twice (or three times! 😉) In 2024, perhaps a more strategic investor is the better bet for many founders...or perhaps bootstrapping will become the only route for many. Time will tell. But, what I DO know is that VC's are becoming very VERY picky about who they fund and who they keep alive. The full article link (and the numbers) are in the comments below. Happy New Year!!! Tim at AscendTMS (TheFreeTMS.com) By InMotion Global, Inc.

A sober analysis of the downturn in VC funding for tech startups from Erin Griffith in the The New York Times. There are some startling statistics like the analysis from PitchBook that firms that received $27 billion in funding have gone out of the business this year. The impression I got from the article is that there is some poor decision-making in Silicon Valley about what to fund. We have been living through a classic bubble with free money driving unrealistic valuations and enabling firms to get funded that may not have deserved it. As the economy stabilizes and interest rates start to fall, its likely funding will return most likely followed by another bubble. However, will VC firms lose some of their notorious arrogance and reflect on how to improve the odds of venture success? Is there a new model for VC firms that replaces the model of "fund everything that moves" with a more disciplined, strategy led one, that looks to solve customer problems? I've had a few calls recently that suggest that it may. I hope this turns out to be the case.

Another report on startup bankruptcies. I wonder why these stories, this one included, so often lack proper analysis on the role of the venture capital business model in the last decade's events? Perhaps e.g. Freya Pratty Eleanor Warnock Elina Lappalainen know of in-depth pieces written on this? I have talked about the venture capital raising frenzy quite a bit with other founders during the past year. Many talk about how the pressure to raise more and more came from their VC investors, not the founders. Anyone who understands the venture capital business model knows why. The role of early-stage innovations and startups in modern societies is crucial. Founders are supposed to be passionate and even slightly grandiose about their ideas. That is the one job founders have: imagine something that doesn't yet exist and build it with exceptional rigour and determination. Overkills, wrong turns and failures of all kinds are bound to happen. The NYT story is full of founder remorse anecdotes, but does not really discuss the closely linked growing pains of one (fairly young) financial sub-industry. I'd like to see more discussion on what VC investing has to learn from the past 10 years: how the industry needs to evolve and what that requires from the various parties involved.

Startup Founder? Do me a favor, and read this full post👇 Venture capital has changed. It's becoming closer to PE standards for many firms. (even the "early" ones) Requiring more traction, MRR, users, etc.. than ever before. Here are 3 tips for early-stage founders in this market: 1️⃣ Generate FOMO To Move Fast: Gone are the days of quick handshake deals. Due diligence can drag on for months, so you need to give a reason for investors to move faster with you. 2️⃣ Focus on Customer Acquisition: Show investors you know how to get money in the door. In this market, there are not as many investors that want to wait 10+ years before you become profitable. 3️⃣ Proactive Fundraising: It's a slower and more difficult process right now to raise money. Start building investor relationships now, when you don't NEED money. 🚀 The competition for capital is fierce, but so are the opportunities.

A great post on how to educate yourself on whether or not your target VCs are going to be the right fit.

VC: we invest in early-stage startups. Same VC: we can’t invest before $1.75M ARR 💀 So, what does “early-stage” really mean? I get that question from a lot of founders. They’re just tired of wasted meetings.  Spending hours with the wrong investors. Here’s the tough truth: It’s really hard to know. Even the round names mean different things at different times. Seed & Series A benchmarks look radically different today vs. Q2 2021. But this is an investor targeting problem… …and you can do things to improve your odds: __ 1️⃣ Ignore the round names. Look at the the size of the rounds they’ve invested invested in over the last 12 months. If they’re investing in $5M “Seed” rounds in 2024, those usually aren’t pre-revenue. A good rule of thumb: most rounds $1.5M+ have some revenue or other commercial traction. 💰 This isn’t a perfect measurement, but it’s a good proxy when you don’t have more information. __ 2️⃣ Be clear about your stage in your email. If you’re pre-revenue, SAY SO. If you’re generating $500k ARR, great. Many founders hide the key data until they get in the meeting. But you’re better off avoiding the meeting if it isn’t a fit. Just ask: “can you invest at this stage, or would it be better to reconnect when we’re a little farther along?” Those 2 tips could save you hours of pointless meetings. __ Was this helpful? 👍 like and ♻️ repost it to help another founder!

VC: we invest in early-stage startups. Same VC: we can’t invest before $1.75M ARR 💀 So, what does “early-stage” really mean? I get that question from a lot of founders. They’re just tired of wasted meetings. Spending hours with the wrong investors. Here’s the tough truth: It’s really hard to know. Even the round names mean different things at different times. Seed & Series A benchmarks look radically different today vs. Q2 2021. But this is an investor targeting problem… …and you can do things to improve your odds: __ 1️⃣ Ignore the round names. Look at the the size of the rounds they’ve invested invested in over the last 12 months. If they’re investing in $5M “Seed” rounds in 2024, those usually aren’t pre-revenue. A good rule of thumb: most rounds $1.5M+ have some revenue or other commercial traction. 💰 This isn’t a perfect measurement, but it’s a good proxy when you don’t have more information. __ 2️⃣ Be clear about your stage in your email. If you’re pre-revenue, SAY SO. If you’re generating $500k ARR, great. Many founders hide the key data until they get in the meeting. But you’re better off avoiding the meeting if it isn’t a fit. Just ask: “can you invest at this stage, or would it be better to reconnect when we’re a little farther along?” Those 2 tips could save you hours of pointless meetings. __ Was this helpful? 👍 like and ♻️ repost it to help another founder!

How does a early-stage startup capture VC interest in a down market? Startup founders need to adapt their tactics for this market where the economic forecast is clouded by rising interest rates and market declines. Statistics have shown that fundraising is down as VCs have shifted their funds to current portfolio companies rather than seek new opportunities. Founders need to emphasize key metrics that showcase market opportunity, traction, and growth potential. 🔥 Burn Rate and Runaway: Burn rate refers to the pace at which your cash reserves are depleting. In a down market, burn rate is essential because running out of cash is the reason most companies fail. Burn rate and runaway illustrate the efficiency of your business, your fundraising timelines, and your company's capital needs. 💸 Total Addressable Market: TAM is an indicator of product-market fit and market opportunity. TAM is the calculation of the maximum size of the market demand for your product or service. It speaks to the scope and urgency of the problem you are solving. 💁Customer acquisition and customer acquisition cost: Healthy user acquisition numbers indicate that your startup is adding new customers consistently. CAC refers to the average cost of acquiring a customer and typically includes any costs associated with advertising, sales, marketing, and onboarding. 📈 Financial projections: Investors want to see a financial model that shows you have the flexibility to save capital when necessary and ramp up spending when the economic environment allows. Your financial projections should factor in fixed costs and variable costs. Read more about what investors are looking for in a down market over at Mercury https://lnkd.in/gWi27Wgx

How does a early-stage startup capture VC interest in a down market? Startup founders need to adapt their tactics for this market where the economic forecast is clouded by rising interest rates and market declines. Statistics have shown that fundraising is down as VCs have shifted their funds to current portfolio companies rather than seek new opportunities. Founders need to emphasize key metrics that showcase market opportunity, traction, and growth potential. 🔥 Burn Rate and Runaway: Burn rate refers to the pace at which your cash reserves are depleting. In a down market, burn rate is essential because running out of cash is the reason most companies fail. Burn rate and runaway illustrate the efficiency of your business, your fundraising timelines, and your company's capital needs. 💸 Total Addressable Market: TAM is an indicator of product-market fit and market opportunity. TAM is the calculation of the maximum size of the market demand for your product or service. It speaks to the scope and urgency of the problem you are solving. 💁Customer acquisition and customer acquisition cost: Healthy user acquisition numbers indicate that your startup is adding new customers consistently. CAC refers to the average cost of acquiring a customer and typically includes any costs associated with advertising, sales, marketing, and onboarding. 📈 Financial projections: Investors want to see a financial model that shows you have the flexibility to save capital when necessary and ramp up spending when the economic environment allows. Your financial projections should factor in fixed costs and variable costs. Read more about what investors are looking for in a down market over at Mercury https://lnkd.in/gwYUzeQB