Venture Capital 2023: The Party Hasn’t Ended—It’s Just Getting Started
Data now supports what many of us have known all along: 2022 saw fewer exits and venture deals than 2021. While 2022 may be remembered as the year that turned the tide on decades of easy money, no matter how challenging the backdrop, there are still thousands of businesses that will need to raise venture capital in 2023 and beyond.
Despite today’s purported ‘funding winter,’ there remains a bevy of opportunities to be found in the current environment—if you know where to look. In this environment, I don’t believe that VC investing has truly dried up. Rather, the strategies have simply changed and, perhaps, the party is just getting started.
One must remember that fearmongering is deeply rooted within media economics. Crises and negativity are what garners audience attention and that’s why they’re reported on. Lest we not forget it’s a venture capitalist’s job to navigate uncertainty and invest in even the most challenging of times—periods where some of the most successful firms have been born.
The following overview paints a picture of why one should strongly consider a renewed sense of VC market optimism, the lessons that are important to learn from the past year, and how your firm can capitalize on what lies ahead.
Reasons to Be Hopeful Amidst the Doom-and-Gloom Reporting
Today, VC firms have almost $300 billion in committed cash sitting idle, commonly referred to as ‘dry powder.’ Just as the last three quarters of 2022 saw some stand-out raises in the VC world, similarly, U.S. private equity firms have another $1.1 trillion waiting at the ready. Both segments are itching to get back to work and see that money grow. So, why are some VCs still sitting on cash.
The answer is (or perhaps, ‘was’) centered on the rapid rise in interest rates since the start of last year. Higher rates have caused the value of stocks to plummet, as investors moved capital into safer assets such as cash and government bonds. The tech-heavy Nasdaq index lost more than a fifth of its value over the past year. In 2022, the amount of capital raised in stock market listings dropped to a 32-year low. The public-market slowdown reduced expected returns for investors in private markets by lowering the valuation at which startups “exit” into public markets. Venture capitalists, therefore, demanded lower prices in order to invest in the first place.
Now, however, the biggest economic worry that encompassed the past few month—soaring inflation—is down to 6.5% in December from a year earlier—a noteworthy reduction as forecasters predict that interest rates will eventually dwindle, as well. In addition, petro prices have steadied or fallen, recent holiday season sales rose, and, in some circles, there’s renewed hope for geopolitical optimism.
Further, we are now witnessing the best startups weather the current downturn by scrapping growth-at-all-costs to focus on hardcore business fundamentals, including free cash flow and “positive unit economics”—selling what you make for more than what it cost you to make it.
As this happens, the VC market and overall ecosystem is destined to improve. Other factors that are heartening include:
A Burgeoning Secondaries Market. Secondaries serve an important function in incentivizing founders and employees by yielding liquidity events. The overall rationale and motivation for such secondaries continues to grow with many companies contemplating longer pathways to IPO or other exits.
Talent on the Move and Employee Equity Incentives. Recent downsizing by Big Tech from the likes of Google, Meta, Amazon, Microsoft and others has put impressive talent on the move and has given well-positioned startups that VC firms support an opportunity to seize that talent. In addition, with a close eye on cash burn and their respective run rates, those very startups are increasingly turning to employee equity to reward and motivate staff. In some tech hubs, such employee equity awards are not only assumed, they’re ubiquitous.
Lessons to Learn Over the Past Year
So what can VCs learn from the past year and recent, well-publicized startup debacles? Here’s a few simple lessons that we think venture capitalists should consider to protect their limited partners and firms from missteps:
Invest in Strong, Resilient Leadership. One of the most important steps you can take is investing in the right founder(s) of a company. Make sure you only invest in resilient founders that are capable of personal growth and accepting responsibility when their choices go south. The lack of responsibility exhibited, for example, by FTX’s Sam Bankman-Fried serves as a reminder to be on the lookout for red flags. Indeed, strong leadership is essential to ensure that founders stay focused on the company’s mission and revenue. A VC firm’s job certainly does not end after it has written the check for the first funding round. Be sure to remain very actively engaged with your portfolio companies and be an active voice on their boards, too.
Enhance Your Due Diligence. Over the past year, firms were relatively quick to invest in Web3 startups and the crypto sector with lackluster due diligence. Perhaps, some of the haste was their lack of understanding surrounding the underpinning technologies and the rest could possibly be chalked up to a form of ‘shiny new object syndrome’ that siphoned their coffers. Regardless, in the wake of the recent FTX debacle and similar events, a VC firm should know everything it can about a company before it offers a term sheet to assess the level of risk it is taking on. It’s essential to dissect any potential conflicts of interest and how previous rounds of capital have been spent by a company’s founder(s).
Invest in the Essentials. You should reconsider investing in Web3 or blockchain projects that are not likely to have a significant near(er)-term impact on peoples’ lives. Rather, focus on breakthrough science and technology that may solve some of society’s greatest challenges—solutions that generate enormous value with better time-to-revenue. Investments that address climate change, the growing lack of natural resources, smarter and more efficient forms of transportation, and health are breakthroughs that society will need more in the years to come.
Seize the Power of New Technologies. Historically, the back offices (and, at times, the overall infrastructure) of VC firms have been laggards in adopting technology to further their missions, But, today, your firm, regardless of its size, needs the ability to manage relationships, transactions, processes, workflows, and the compliance of the firm in a very data-centric, automated and secure manner. Accordingly, you should be selecting purpose-built platform technology, such as Asset Class, that’s easily configured to meet your firm’s unique needs. With increased competition in the market, it can be more difficult than ever your firm’s leaders to grasp just how much markets are shifting each day with the advent of new technologies. Since technological evolution will have a serious impact on your firm’s ability to achieve long-term success, taking heed of what mistakes to avoid can make all the difference.
I remain a strong advocate in the power of venture capital to transform our world for the better. But, at the end of the day, that requires VCs to allocate capital to the right companies. There are a number of lessons to be learned over the past year, but I think not wasting money on things that don’t fundamentally improve business and people’s lives is, perhaps, the most important one.
Summary
Despite last year’s turbulence, many VC firms continue to express cautious optimism for the year ahead. Just as a new breed of thick-skinned startups emerge, we are seeing greater resilience, heightened diligence, and a greater focus on solving big problems in the VC sector that are definitely worth celebrating.
Instead of discussing the purported ‘funding winter’ with your colleagues, seek to reimagine the current situation as a sort of correction for the entire VC investing ecosystem. I have no doubt that it’s only a matter of months before that ecosystem gains the strong tailwinds it had about a year ago. When it does, those who seized the opportunities of this winter will be the best poised to flourish.
Discover How Asset Class Can Help Your Team
Need help charting a course in the New Year with the platform technology that’ll give your team an edge? This is exactly where our deep subject matter expertise lies. Today, the Asset Class Private Capital Cloud powers hundreds of VC firms around the world. Discover how the platform can help make your future of in finance frictionless. Schedule a demo with one of our team members today.
Sources:
https://www.economist.com/finance-and-economics/2023/01/18/venture-capitals-300bn-question
https://techcrunch.com/2023/01/17/putting-numbers-on-the-global-venture-slowdown/
https://pitchbook.com/news/reports/q4-2022-pitchbook-analyst-note-2023-us-venture-capital-outlook
Data now supports what many of us have known all along: 2022 saw fewer exits and venture deals than 2021. While 2022 may be remembered as the year that turned the tide on decades of easy money, no matter how challenging the backdrop, there are still thousands of businesses that will need to raise venture capital in 2023 and beyond.
Despite today’s purported ‘funding winter,’ there remains a bevy of opportunities to be found in the current environment—if you know where to look. In this environment, I don’t believe that VC investing has truly dried up. Rather, the strategies have simply changed and, perhaps, the party is just getting started.
One must remember that fearmongering is deeply rooted within media economics. Crises and negativity are what garners audience attention and that’s why they’re reported on. Lest we not forget it’s a venture capitalist’s job to navigate uncertainty and invest in even the most challenging of times—periods where some of the most successful firms have been born.
The following overview paints a picture of why one should strongly consider a renewed sense of VC market optimism, the lessons that are important to learn from the past year, and how your firm can capitalize on what lies ahead.
Reasons to Be Hopeful Amidst the Doom-and-Gloom Reporting
Today, VC firms have almost $300 billion in committed cash sitting idle, commonly referred to as ‘dry powder.’ Just as the last three quarters of 2022 saw some stand-out raises in the VC world, similarly, U.S. private equity firms have another $1.1 trillion waiting at the ready. Both segments are itching to get back to work and see that money grow. So, why are some VCs still sitting on cash.
The answer is (or perhaps, ‘was’) centered on the rapid rise in interest rates since the start of last year. Higher rates have caused the value of stocks to plummet, as investors moved capital into safer assets such as cash and government bonds. The tech-heavy Nasdaq index lost more than a fifth of its value over the past year. In 2022, the amount of capital raised in stock market listings dropped to a 32-year low. The public-market slowdown reduced expected returns for investors in private markets by lowering the valuation at which startups “exit” into public markets. Venture capitalists, therefore, demanded lower prices in order to invest in the first place.
Now, however, the biggest economic worry that encompassed the past few month—soaring inflation—is down to 6.5% in December from a year earlier—a noteworthy reduction as forecasters predict that interest rates will eventually dwindle, as well. In addition, petro prices have steadied or fallen, recent holiday season sales rose, and, in some circles, there’s renewed hope for geopolitical optimism.
Further, we are now witnessing the best startups weather the current downturn by scrapping growth-at-all-costs to focus on hardcore business fundamentals, including free cash flow and “positive unit economics”—selling what you make for more than what it cost you to make it.
As this happens, the VC market and overall ecosystem is destined to improve. Other factors that are heartening include:
A Burgeoning Secondaries Market. Secondaries serve an important function in incentivizing founders and employees by yielding liquidity events. The overall rationale and motivation for such secondaries continues to grow with many companies contemplating longer pathways to IPO or other exits.
Talent on the Move and Employee Equity Incentives. Recent downsizing by Big Tech from the likes of Google, Meta, Amazon, Microsoft and others has put impressive talent on the move and has given well-positioned startups that VC firms support an opportunity to seize that talent. In addition, with a close eye on cash burn and their respective run rates, those very startups are increasingly turning to employee equity to reward and motivate staff. In some tech hubs, such employee equity awards are not only assumed, they’re ubiquitous.
Lessons to Learn Over the Past Year
So what can VCs learn from the past year and recent, well-publicized startup debacles? Here’s a few simple lessons that we think venture capitalists should consider to protect their limited partners and firms from missteps:
Invest in Strong, Resilient Leadership. One of the most important steps you can take is investing in the right founder(s) of a company. Make sure you only invest in resilient founders that are capable of personal growth and accepting responsibility when their choices go south. The lack of responsibility exhibited, for example, by FTX’s Sam Bankman-Fried serves as a reminder to be on the lookout for red flags. Indeed, strong leadership is essential to ensure that founders stay focused on the company’s mission and revenue. A VC firm’s job certainly does not end after it has written the check for the first funding round. Be sure to remain very actively engaged with your portfolio companies and be an active voice on their boards, too.
Enhance Your Due Diligence. Over the past year, firms were relatively quick to invest in Web3 startups and the crypto sector with lackluster due diligence. Perhaps, some of the haste was their lack of understanding surrounding the underpinning technologies and the rest could possibly be chalked up to a form of ‘shiny new object syndrome’ that siphoned their coffers. Regardless, in the wake of the recent FTX debacle and similar events, a VC firm should know everything it can about a company before it offers a term sheet to assess the level of risk it is taking on. It’s essential to dissect any potential conflicts of interest and how previous rounds of capital have been spent by a company’s founder(s).
Invest in the Essentials. You should reconsider investing in Web3 or blockchain projects that are not likely to have a significant near(er)-term impact on peoples’ lives. Rather, focus on breakthrough science and technology that may solve some of society’s greatest challenges—solutions that generate enormous value with better time-to-revenue. Investments that address climate change, the growing lack of natural resources, smarter and more efficient forms of transportation, and health are breakthroughs that society will need more in the years to come.
Seize the Power of New Technologies. Historically, the back offices (and, at times, the overall infrastructure) of VC firms have been laggards in adopting technology to further their missions, But, today, your firm, regardless of its size, needs the ability to manage relationships, transactions, processes, workflows, and the compliance of the firm in a very data-centric, automated and secure manner. Accordingly, you should be selecting purpose-built platform technology, such as Asset Class, that’s easily configured to meet your firm’s unique needs. With increased competition in the market, it can be more difficult than ever your firm’s leaders to grasp just how much markets are shifting each day with the advent of new technologies. Since technological evolution will have a serious impact on your firm’s ability to achieve long-term success, taking heed of what mistakes to avoid can make all the difference.
I remain a strong advocate in the power of venture capital to transform our world for the better. But, at the end of the day, that requires VCs to allocate capital to the right companies. There are a number of lessons to be learned over the past year, but I think not wasting money on things that don’t fundamentally improve business and people’s lives is, perhaps, the most important one.
Summary
Despite last year’s turbulence, many VC firms continue to express cautious optimism for the year ahead. Just as a new breed of thick-skinned startups emerge, we are seeing greater resilience, heightened diligence, and a greater focus on solving big problems in the VC sector that are definitely worth celebrating.
Instead of discussing the purported ‘funding winter’ with your colleagues, seek to reimagine the current situation as a sort of correction for the entire VC investing ecosystem. I have no doubt that it’s only a matter of months before that ecosystem gains the strong tailwinds it had about a year ago. When it does, those who seized the opportunities of this winter will be the best poised to flourish.
Discover How Asset Class Can Help Your Team
Need help charting a course in the New Year with the platform technology that’ll give your team an edge? This is exactly where our deep subject matter expertise lies. Today, the Asset Class Private Capital Cloud powers hundreds of VC firms around the world. Discover how the platform can help make your future of in finance frictionless. Schedule a demo with one of our team members today.
Sources:
https://www.economist.com/finance-and-economics/2023/01/18/venture-capitals-300bn-question
https://techcrunch.com/2023/01/17/putting-numbers-on-the-global-venture-slowdown/
https://pitchbook.com/news/reports/q4-2022-pitchbook-analyst-note-2023-us-venture-capital-outlook
Data now supports what many of us have known all along: 2022 saw fewer exits and venture deals than 2021. While 2022 may be remembered as the year that turned the tide on decades of easy money, no matter how challenging the backdrop, there are still thousands of businesses that will need to raise venture capital in 2023 and beyond.
Despite today’s purported ‘funding winter,’ there remains a bevy of opportunities to be found in the current environment—if you know where to look. In this environment, I don’t believe that VC investing has truly dried up. Rather, the strategies have simply changed and, perhaps, the party is just getting started.
One must remember that fearmongering is deeply rooted within media economics. Crises and negativity are what garners audience attention and that’s why they’re reported on. Lest we not forget it’s a venture capitalist’s job to navigate uncertainty and invest in even the most challenging of times—periods where some of the most successful firms have been born.
The following overview paints a picture of why one should strongly consider a renewed sense of VC market optimism, the lessons that are important to learn from the past year, and how your firm can capitalize on what lies ahead.
Reasons to Be Hopeful Amidst the Doom-and-Gloom Reporting
Today, VC firms have almost $300 billion in committed cash sitting idle, commonly referred to as ‘dry powder.’ Just as the last three quarters of 2022 saw some stand-out raises in the VC world, similarly, U.S. private equity firms have another $1.1 trillion waiting at the ready. Both segments are itching to get back to work and see that money grow. So, why are some VCs still sitting on cash.
The answer is (or perhaps, ‘was’) centered on the rapid rise in interest rates since the start of last year. Higher rates have caused the value of stocks to plummet, as investors moved capital into safer assets such as cash and government bonds. The tech-heavy Nasdaq index lost more than a fifth of its value over the past year. In 2022, the amount of capital raised in stock market listings dropped to a 32-year low. The public-market slowdown reduced expected returns for investors in private markets by lowering the valuation at which startups “exit” into public markets. Venture capitalists, therefore, demanded lower prices in order to invest in the first place.
Now, however, the biggest economic worry that encompassed the past few month—soaring inflation—is down to 6.5% in December from a year earlier—a noteworthy reduction as forecasters predict that interest rates will eventually dwindle, as well. In addition, petro prices have steadied or fallen, recent holiday season sales rose, and, in some circles, there’s renewed hope for geopolitical optimism.
Further, we are now witnessing the best startups weather the current downturn by scrapping growth-at-all-costs to focus on hardcore business fundamentals, including free cash flow and “positive unit economics”—selling what you make for more than what it cost you to make it.
As this happens, the VC market and overall ecosystem is destined to improve. Other factors that are heartening include:
A Burgeoning Secondaries Market. Secondaries serve an important function in incentivizing founders and employees by yielding liquidity events. The overall rationale and motivation for such secondaries continues to grow with many companies contemplating longer pathways to IPO or other exits.
Talent on the Move and Employee Equity Incentives. Recent downsizing by Big Tech from the likes of Google, Meta, Amazon, Microsoft and others has put impressive talent on the move and has given well-positioned startups that VC firms support an opportunity to seize that talent. In addition, with a close eye on cash burn and their respective run rates, those very startups are increasingly turning to employee equity to reward and motivate staff. In some tech hubs, such employee equity awards are not only assumed, they’re ubiquitous.
Lessons to Learn Over the Past Year
So what can VCs learn from the past year and recent, well-publicized startup debacles? Here’s a few simple lessons that we think venture capitalists should consider to protect their limited partners and firms from missteps:
Invest in Strong, Resilient Leadership. One of the most important steps you can take is investing in the right founder(s) of a company. Make sure you only invest in resilient founders that are capable of personal growth and accepting responsibility when their choices go south. The lack of responsibility exhibited, for example, by FTX’s Sam Bankman-Fried serves as a reminder to be on the lookout for red flags. Indeed, strong leadership is essential to ensure that founders stay focused on the company’s mission and revenue. A VC firm’s job certainly does not end after it has written the check for the first funding round. Be sure to remain very actively engaged with your portfolio companies and be an active voice on their boards, too.
Enhance Your Due Diligence. Over the past year, firms were relatively quick to invest in Web3 startups and the crypto sector with lackluster due diligence. Perhaps, some of the haste was their lack of understanding surrounding the underpinning technologies and the rest could possibly be chalked up to a form of ‘shiny new object syndrome’ that siphoned their coffers. Regardless, in the wake of the recent FTX debacle and similar events, a VC firm should know everything it can about a company before it offers a term sheet to assess the level of risk it is taking on. It’s essential to dissect any potential conflicts of interest and how previous rounds of capital have been spent by a company’s founder(s).
Invest in the Essentials. You should reconsider investing in Web3 or blockchain projects that are not likely to have a significant near(er)-term impact on peoples’ lives. Rather, focus on breakthrough science and technology that may solve some of society’s greatest challenges—solutions that generate enormous value with better time-to-revenue. Investments that address climate change, the growing lack of natural resources, smarter and more efficient forms of transportation, and health are breakthroughs that society will need more in the years to come.
Seize the Power of New Technologies. Historically, the back offices (and, at times, the overall infrastructure) of VC firms have been laggards in adopting technology to further their missions, But, today, your firm, regardless of its size, needs the ability to manage relationships, transactions, processes, workflows, and the compliance of the firm in a very data-centric, automated and secure manner. Accordingly, you should be selecting purpose-built platform technology, such as Asset Class, that’s easily configured to meet your firm’s unique needs. With increased competition in the market, it can be more difficult than ever your firm’s leaders to grasp just how much markets are shifting each day with the advent of new technologies. Since technological evolution will have a serious impact on your firm’s ability to achieve long-term success, taking heed of what mistakes to avoid can make all the difference.
I remain a strong advocate in the power of venture capital to transform our world for the better. But, at the end of the day, that requires VCs to allocate capital to the right companies. There are a number of lessons to be learned over the past year, but I think not wasting money on things that don’t fundamentally improve business and people’s lives is, perhaps, the most important one.
Summary
Despite last year’s turbulence, many VC firms continue to express cautious optimism for the year ahead. Just as a new breed of thick-skinned startups emerge, we are seeing greater resilience, heightened diligence, and a greater focus on solving big problems in the VC sector that are definitely worth celebrating.
Instead of discussing the purported ‘funding winter’ with your colleagues, seek to reimagine the current situation as a sort of correction for the entire VC investing ecosystem. I have no doubt that it’s only a matter of months before that ecosystem gains the strong tailwinds it had about a year ago. When it does, those who seized the opportunities of this winter will be the best poised to flourish.
Discover How Asset Class Can Help Your Team
Need help charting a course in the New Year with the platform technology that’ll give your team an edge? This is exactly where our deep subject matter expertise lies. Today, the Asset Class Private Capital Cloud powers hundreds of VC firms around the world. Discover how the platform can help make your future of in finance frictionless. Schedule a demo with one of our team members today.
Sources:
https://www.economist.com/finance-and-economics/2023/01/18/venture-capitals-300bn-question
https://techcrunch.com/2023/01/17/putting-numbers-on-the-global-venture-slowdown/
https://pitchbook.com/news/reports/q4-2022-pitchbook-analyst-note-2023-us-venture-capital-outlook
Data now supports what many of us have known all along: 2022 saw fewer exits and venture deals than 2021. While 2022 may be remembered as the year that turned the tide on decades of easy money, no matter how challenging the backdrop, there are still thousands of businesses that will need to raise venture capital in 2023 and beyond.
Despite today’s purported ‘funding winter,’ there remains a bevy of opportunities to be found in the current environment—if you know where to look. In this environment, I don’t believe that VC investing has truly dried up. Rather, the strategies have simply changed and, perhaps, the party is just getting started.
One must remember that fearmongering is deeply rooted within media economics. Crises and negativity are what garners audience attention and that’s why they’re reported on. Lest we not forget it’s a venture capitalist’s job to navigate uncertainty and invest in even the most challenging of times—periods where some of the most successful firms have been born.
The following overview paints a picture of why one should strongly consider a renewed sense of VC market optimism, the lessons that are important to learn from the past year, and how your firm can capitalize on what lies ahead.
Reasons to Be Hopeful Amidst the Doom-and-Gloom Reporting
Today, VC firms have almost $300 billion in committed cash sitting idle, commonly referred to as ‘dry powder.’ Just as the last three quarters of 2022 saw some stand-out raises in the VC world, similarly, U.S. private equity firms have another $1.1 trillion waiting at the ready. Both segments are itching to get back to work and see that money grow. So, why are some VCs still sitting on cash.
The answer is (or perhaps, ‘was’) centered on the rapid rise in interest rates since the start of last year. Higher rates have caused the value of stocks to plummet, as investors moved capital into safer assets such as cash and government bonds. The tech-heavy Nasdaq index lost more than a fifth of its value over the past year. In 2022, the amount of capital raised in stock market listings dropped to a 32-year low. The public-market slowdown reduced expected returns for investors in private markets by lowering the valuation at which startups “exit” into public markets. Venture capitalists, therefore, demanded lower prices in order to invest in the first place.
Now, however, the biggest economic worry that encompassed the past few month—soaring inflation—is down to 6.5% in December from a year earlier—a noteworthy reduction as forecasters predict that interest rates will eventually dwindle, as well. In addition, petro prices have steadied or fallen, recent holiday season sales rose, and, in some circles, there’s renewed hope for geopolitical optimism.
Further, we are now witnessing the best startups weather the current downturn by scrapping growth-at-all-costs to focus on hardcore business fundamentals, including free cash flow and “positive unit economics”—selling what you make for more than what it cost you to make it.
As this happens, the VC market and overall ecosystem is destined to improve. Other factors that are heartening include:
A Burgeoning Secondaries Market. Secondaries serve an important function in incentivizing founders and employees by yielding liquidity events. The overall rationale and motivation for such secondaries continues to grow with many companies contemplating longer pathways to IPO or other exits.
Talent on the Move and Employee Equity Incentives. Recent downsizing by Big Tech from the likes of Google, Meta, Amazon, Microsoft and others has put impressive talent on the move and has given well-positioned startups that VC firms support an opportunity to seize that talent. In addition, with a close eye on cash burn and their respective run rates, those very startups are increasingly turning to employee equity to reward and motivate staff. In some tech hubs, such employee equity awards are not only assumed, they’re ubiquitous.
Lessons to Learn Over the Past Year
So what can VCs learn from the past year and recent, well-publicized startup debacles? Here’s a few simple lessons that we think venture capitalists should consider to protect their limited partners and firms from missteps:
Invest in Strong, Resilient Leadership. One of the most important steps you can take is investing in the right founder(s) of a company. Make sure you only invest in resilient founders that are capable of personal growth and accepting responsibility when their choices go south. The lack of responsibility exhibited, for example, by FTX’s Sam Bankman-Fried serves as a reminder to be on the lookout for red flags. Indeed, strong leadership is essential to ensure that founders stay focused on the company’s mission and revenue. A VC firm’s job certainly does not end after it has written the check for the first funding round. Be sure to remain very actively engaged with your portfolio companies and be an active voice on their boards, too.
Enhance Your Due Diligence. Over the past year, firms were relatively quick to invest in Web3 startups and the crypto sector with lackluster due diligence. Perhaps, some of the haste was their lack of understanding surrounding the underpinning technologies and the rest could possibly be chalked up to a form of ‘shiny new object syndrome’ that siphoned their coffers. Regardless, in the wake of the recent FTX debacle and similar events, a VC firm should know everything it can about a company before it offers a term sheet to assess the level of risk it is taking on. It’s essential to dissect any potential conflicts of interest and how previous rounds of capital have been spent by a company’s founder(s).
Invest in the Essentials. You should reconsider investing in Web3 or blockchain projects that are not likely to have a significant near(er)-term impact on peoples’ lives. Rather, focus on breakthrough science and technology that may solve some of society’s greatest challenges—solutions that generate enormous value with better time-to-revenue. Investments that address climate change, the growing lack of natural resources, smarter and more efficient forms of transportation, and health are breakthroughs that society will need more in the years to come.
Seize the Power of New Technologies. Historically, the back offices (and, at times, the overall infrastructure) of VC firms have been laggards in adopting technology to further their missions, But, today, your firm, regardless of its size, needs the ability to manage relationships, transactions, processes, workflows, and the compliance of the firm in a very data-centric, automated and secure manner. Accordingly, you should be selecting purpose-built platform technology, such as Asset Class, that’s easily configured to meet your firm’s unique needs. With increased competition in the market, it can be more difficult than ever your firm’s leaders to grasp just how much markets are shifting each day with the advent of new technologies. Since technological evolution will have a serious impact on your firm’s ability to achieve long-term success, taking heed of what mistakes to avoid can make all the difference.
I remain a strong advocate in the power of venture capital to transform our world for the better. But, at the end of the day, that requires VCs to allocate capital to the right companies. There are a number of lessons to be learned over the past year, but I think not wasting money on things that don’t fundamentally improve business and people’s lives is, perhaps, the most important one.
Summary
Despite last year’s turbulence, many VC firms continue to express cautious optimism for the year ahead. Just as a new breed of thick-skinned startups emerge, we are seeing greater resilience, heightened diligence, and a greater focus on solving big problems in the VC sector that are definitely worth celebrating.
Instead of discussing the purported ‘funding winter’ with your colleagues, seek to reimagine the current situation as a sort of correction for the entire VC investing ecosystem. I have no doubt that it’s only a matter of months before that ecosystem gains the strong tailwinds it had about a year ago. When it does, those who seized the opportunities of this winter will be the best poised to flourish.
Discover How Asset Class Can Help Your Team
Need help charting a course in the New Year with the platform technology that’ll give your team an edge? This is exactly where our deep subject matter expertise lies. Today, the Asset Class Private Capital Cloud powers hundreds of VC firms around the world. Discover how the platform can help make your future of in finance frictionless. Schedule a demo with one of our team members today.
Sources:
https://www.economist.com/finance-and-economics/2023/01/18/venture-capitals-300bn-question
https://techcrunch.com/2023/01/17/putting-numbers-on-the-global-venture-slowdown/
https://pitchbook.com/news/reports/q4-2022-pitchbook-analyst-note-2023-us-venture-capital-outlook
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