Early-stage founders still have currency: Fundraising in times of greater VC scrutiny

There’s no question about it: The market going into 2023 isn’t going to be what it was when 2021 ended, when growth at all costs sometimes trumped common sense.

But the market isn’t as “down” as it may seem. There’s plenty of money to be invested, and founders who have the right mix of purpose, business model and traction need to remember that opportunities for funding can still be found.

Sky-high valuations and questionable investments in 2021 have brought investors back to Earth and prompted more thorough analysis of investment opportunities. This return to discipline, demonstrated by a more tempered and stabilized volume of investor weekly pitch deck interactions, isn’t a big surprise. The pace in 2021 was unsustainable and there was bound to be a slowdown in the funds invested. However, it’s not because there is no money left.

As of September, there was around $290 billion in “dry powder” floating around — enough to fuel startup investments for the next four years — but founders are finding it harder to raise money than they have in many years. Instead of demanding growth at all costs, VCs are taking a deep breath and erring on the side of patience.

Unlike in 2021, unsuccessful early-stage decks today aren’t getting as much investor time as successful decks.

Founders may be discouraged in this environment, but they need to remember that they have “currency,” too. Founders should do their own due diligence by identifying investors who best suit their needs and focus on their core strengths and value propositions.

Due diligence isn’t only for investors

Founders should always be eager to set up meetings with investors, but they should aim to reach out to a variety of investors, too.

Much as a product is dependent on its market, a founder is dependent on their investors. Not all investor meetings are equal, so founders need to research their potential investors thoroughly.

DocSend’s recent pre-seed report found that the average number of investors contacted dropped from 69 to 60 in 2022, but the average number of meetings scheduled increased from 39 to 52. This could be a sign that early-stage founders are starting to practice due diligence on their end as well, vetting investors and bringing different expectations to every meeting.