Featured Article

5 trends in VC funding for pre-seed startups

Here’s how to close a funding round in 2023


save and finance concept, money coin in jar with laptop on table
Image Credits: Marcu Radulescu/500px (opens in a new window) / Getty Images

Silicon Valley’s image as a shiny, money-spewing beacon on a hill of boundless opportunity has gotten a bit of a readjustment over the past year. The fundraising landscape has been utterly brutal. Yes, VCs are still sitting on a lot of dry powder, but as the entire economy shifts, many are nervous about where their next fund will come from.

It seems that we’re heading into a perfect storm, where more and more VCs are moving downstream, investing in slightly later-stage startups with less risk.

While this caution might stifle some innovation, it might also pave the way for a more sustainable, value-driven ecosystem. Data from Dropbox DocSend seems to indicate that as the venture landscape recalibrates, the next wave of unicorns will likely be those who can navigate this new terrain of skepticism and scrutiny.

In 2022, 25% of successful fundraises were completed in six weeks or less. For this year, the number is 13%. Deals at the earliest stages of the startup journey have been hit especially hard; at the pre-seed stage, year over year, investment was half in Q2 2023 compared to the year before. We’ve spoken to the investors about this and looked deeper at the investment cadence in the first half of the year, but however you spin it, it hasn’t been pretty.

Compared to H1 2022, so far this year, VCs are spending 12% less time poring over pitch decks, but founders haven’t slowed down: 16% more decks were sent out.

“It’s surprising that founders are still looking for funding, despite the volatility,” DocSend research lead Justin Izzo told me. “The founder activity stayed high, year over year. Relative to pre-pandemic levels, things haven’t really changed. Maybe it’s because of all the tech workers who were laid off and started companies of their own.”

Still, what are founders to do? If you’re going to start a company, and you want to go the VC route, it’s gotten harder, and diligence is much tighter than it was. Although maybe a market correction isn’t such a bad thing. But a year’s worth of DocSend data shows how founders should structure their pitch decks in order to gain maximum attention, and hopefully maximum fundraises.

The “why now” is important

One of the major shifts DocSend saw in terms of engagement is that successful pitch decks include a lot more context than before. Opening slides tend to focus on a company’s purpose and how it wants to change the world. From there, the “why now” slide, positioning the company historically, is crucial. Having a product that can generate revenue sooner rather than later, and a business model that makes sense, are also key elements of landing a VC meeting.

Emphasizing “why now” makes sense psychologically, as a way to cook up a little bit of additional FOMO. If you could have built your company five years ago, why didn’t you? If it can wait five years, you should wait till then, too, when the market will have recovered. Including a tight narrative that anchors the company in the now makes a lot of sense when investors are trying to build a resilient portfolio.

Time for some ruthless editing

Oh, and as we’re talking about time, let’s talk about brevity.

“Pre-seed founders have responded to the investor pullback by creating shorter decks. They are rearranging the opening slides in ways I hadn’t seen before,” Izzo said. “They are heading right into the ‘why now,’ here’s our product, and here’s how we’re going to monetize that product. It makes for very abrupt reading — I’m used to a little bit more [narrative] — but pre-seed founders these days know that investors aren’t spending much time on the decks.”

Founders have to be ruthless, both with the number of slides in a deck and the number of words on each slide. From 2022, the average slide deck dropped from 19 slides to 16.

Mark Twain’s “I didn’t have time to write you a short letter, so here is a long one instead” might work for people who are willing to give you the time of day, but keep that 16% bump in number of inbound decks in mind: Investors want to get the info they need to make an early decision on whether to spend more time with a company.

From 2022 to 2023, VCs are spending almost 20% less time (2 minutes 12 seconds now, compared to 2 minutes 42 seconds a year ago) reviewing pitch decks. If you’ve got 2 minutes of their time, make it count. How much does this matter? Data from DocSend indicates that 40% of successful pre-seed teams had shorter-than-average decks, and 65% of unsuccessful teams had decks with more slides than average. Statistics don’t lie: shorten those decks.

As a startup founder, you really need to understand how venture capital works

Longtime profitability

Growth is still the name of the game, but there’s some evidence indicating that investors look favorably at startups that can regulate the flow of cash into a long-time sustainable model. DocSend saw a shift toward companies that can reach break-even and profitability earlier in their life cycle.

Overall, according to the data, investors are spending almost 50% more time on business models and 25% more time on traction slides compared to last year. Perhaps even more telling, for unsuccessful pitches, investors are spending twice as much time on traction and 85% more time on the business models. If you don’t have revenue yet, pay extra close attention to how you express your traction slide.

“Even at the pre-seed stages, investors are looking for signs that the business is set up for success and that the founders have thought about what their path to profitability looks like,” Izzo said. “That makes perfect sense to me. It might be a response to concerns about the viability of companies.”

In an industry with 10-year fund cycles, it’s hard to find leading indicators for success, but it’s particularly hard right now, in a market where the noise-to-signal ratio is off the charts. On the one hand, it makes a lot of sense to ensure that companies can survive if fundraising gets even harder for a while, but on the flip side, VCs don’t want a bunch of “zombie companies” (i.e., startups that are not growing exponentially but that are also not burning out and going out of business) on their books.

Focus on the financials

Of course, financials and profitability go hand in hand, but which traction metrics are presented can be a powerful indicator for how founders think about their financial journey.

For successful pitch decks, investors are spending 60% more time on the financials section of a pitch deck compared to a year ago. Finding a compelling story — both in words and in terms of a sensible operating plan that shows the financials and key milestones — goes a long way.

DocSend’s data suggests that well-presented, meaningful traction metrics can be the difference between success and failure on the fundraising trail. Responsible historical spending and a plan that shows a degree of getting leverage out of the funds spent can help.

Of course, the trick here is to find a balance: If your financial plan shows an overly conservative spend resulting in a slow growth trajectory, you’re spelling out a recipe for becoming one of those aforementioned zombie companies.

Weariness about AI

The hype cycle about AI has been loud and going strong, with investors fighting to lead rounds in AI startups, but there seems to be a note of caution evolving on that front, too: There were 60% more pre-seed companies working in AI in 2022–2023 compared to the year before. That opens opportunities for investors, but separating the wheat from the chaff becomes more challenging in a nascent market where it’s tricky to differentiate the real business cases for the tech from the ballooning hype.

“VCs are wary [about AI], and they should be,” Izzo said. “LPs are wary, and they should be. And yet, there’s a kernel of excitement for founders who are doing things with generative AI that go beyond window dressing for the sake of a pitch deck.”

In other words: If you’re going to slap AI/ML on a deck, it had better be because leaning on new technologies gives you a real, measurable advantage for your startup, not because it is the newest, hottest thing. Painting a layer of AI on top of a product that doesn’t need it is a contraindication: It shows that founders don’t know how to stay focused on the challenge at hand.

There’s a lot of noise in the data out there at the moment, and there are a few very strange narratives happening all at once right now. There are a bunch of VCs sitting on dry powder; LPs still willing to write checks are there, too.

“In the comic strip ‘Calvin and Hobbes,’ they play this game called Calvin Ball where you’re making up the rules as you go along. It’s never the same game twice,” Izzo said, suggesting that the fundraising landscape is a lot like that at the moment. “As long as you understand that the only rule is that there are no hard and fast rules, regardless of whether you’re a founder or a VC, the money can flow to you. Figuring out how to do that in a way that sounds organic and genuine and not like you are a bullshit artist is the real key here at a bunch of different levels of the ecosystem.”

More TechCrunch

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

2 days ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

2 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo