RESEARCH TRIANGLE PARK – The PitchBook-NVCA Venture Monitor report for Q3 2023 report, released Thursday, shared a pretty bleak outlook.
Not only was last quarter one of the lowest for deal flow in the past few years, but investors are anticipating more trouble ahead.
“From generative artificial intelligence (AI) to geopolitics, the number of effectively unprecedented factors impacting the market today means that investors are still searching for equilibrium in an economy that is in flux,” according to the report.
WRAL TechWire spoke to a number of local investors to get their take—and their advice for startups in light of these numbers.
Tough Times Ahead
Scot Wingo, founder of the Tweener Fund, told WRAL TechWire that he’s telling startups to get ready for a challenging investment season.
“We’re preparing our companies that future rounds are going to be tougher sledding,” said Wingo. “So have a plan A, B and C.”
Wingo said he learned his lesson a few times—from the internet bubble burst to 9/11, the global financial crisis of 2008 through to COVID—and told TechWire that “80% of success in startups is making it through rough patches.”
“Everyone should be prepared to go into survival mode,” said Wingo.
What are their portfolio companies doing?
Eva Doss, President and CEO of The Launch Place, told TechWire that the majority of their investment activity was focused on investing in “bridge rounds” of our existing portfolio companies.
(The Launch Place is an entrepreneurial support organization based in Danville, VA, with an RTP office; they have a pre-seed fund and seed fund.)
“We saw a decline in investing in new startups (outside of our portfolio), which has been the case for most of our syndication partners across the Southeast as well,” said Doss in an email. “Our existing portfolio companies, and also new startups we have been working with, have experienced difficulty raising additional capital from new investors, which included stronger terms, lower valuations, and smaller check-sizes.”
Doss also said that their portfolio of companies is preparing for these trends to continue—she says through Q3 2024.
“Our portfolio companies do have a realistic understanding of the difficulty raising additional capital,” said Doss. “I believe they are also anticipating that the trend will continue in 2024, and therefore they are implementing cost-cutting measures.”
Investing in a down market
David Gardner of Cofounders Capital is looking at these trends with an eye on possibility.
“Investing in a down market is often very lucrative,” said Gardner.
Gardner’s experience is focused on very early-stage B2B SaaS companies — a space where startups can often grow “more conservatively,” he says.
“Next year could be more challenging, but we play a very long game,” said Gardner. “By the time our new portfolio startups are ready to exit, we will most likely be back in a boom market again.”
Wingo hopes that the turnaround will be mid-next year.
“Everyone is waiting for the macroeconomic and negative geopolitical news to improve. Unfortunately, they keep getting worse,” said Wingo. “Investment bankers think the macroeconomics will improve in the second half of 2024, so we’re all hoping that’s true—and sooner.”