Is now the time for a new style of startup?
As an investor in 2 funds and 70 startups, and from speaking to dozens of investors and founders since Jan, this is what I’m seeing in the market, and what I expect from the next few years.
Am I seeing a warped version of reality, or do you see this too?
Sales are down. Many companies aren’t buying or hiring (especially those with venture backing). This is affecting the entire ecosystem. If you sell to “high-growth” companies especially, your business is suffering big time.
M&A is moving at a slow crawl. IPOs and buyouts are very few and far between, and no longer speculative. To get a deal done, sellers need a water-tight value prop. and a low multiple.
There’s no liquidity. Deals are delayed, managers can’t return money to LPs, and LPs aren’t backing new funds. Emerging managers are disappearing by the day.
Most founders can’t raise. With no exits for founders and early-stage investors, there’s a lot less capital available for new startups. Fewer deals are closing, and at lower valuations.
So what comes next?
Coming are the days of rational startups.
Founders and individual investors alike are realising that venture funding is not, in fact, the goal.
A healthy business ecosystem relies on smart people building companies that deliver value to customers consistently, get to “default alive” quickly, are staffed by capable and motivated employees, leverage the latest technologies, and put their customers first.
This wave of entrepreneurs are not trying to “build unicorns”.
These founders are not prepared to “do or die”.
Instead, venture-hungry entrepreneurs will give way to more rational founders, who want to build sustainable businesses that provide a good return, over a realistic time frame, to their investors, their staff, their families and themselves.
Some might even enjoy the journey.
Most founders will (quite rightly) forget billions and focus on millions. They will raise and exit at lower valuations, use less external capital, and build healthier, more resilient and longer lasting businesses.
This has been a long time coming.
