The NEW MINDSET for Pre-Seed / Seed Startup Funding

Summary

In this video, a seasoned founder with multiple exits discusses the significant shift in startup funding in 2024. He emphasizes that the 'easy money' days are over, and the new normal favors startups with proven traction and revenue. Founders must adopt a 'relentlessly resourceful, pessimistically persistent' approach, expecting longer funding cycles and higher capital requirements. The speaker advises founders to reset their expectations, focus on building sustainable businesses, and attract investment when they don't need it for the best valuations and equity.

Takeaways

• 🚀 The funding landscape has significantly changed in 2024, with a shift away from the conditions of 2021 that founders must recognize and adapt to.
• 💼 The speaker is a seasoned entrepreneur with multiple successful funding rounds and exits, providing credibility to their insights on the current funding environment.
• 📈 There is a 'flight to quality' where investors are focusing on startups that are further along, with established traction, revenue, and product-market fit.
• ⏱️ The time it takes for funding to be deposited has increased from 4 weeks to 6 to 12 months, indicating a more cautious and slower investment process.
• 💰 Investors are more discerning and can afford to wait, which means founders need to be more disciplined with their capital and realistic about funding timelines.
• 🛑 The old funding model, where startups would quickly progress from pre-seed to seed to A rounds, is no longer as prevalent due to higher standards and a focus on revenue generation.
• 🔄 Founders need to adopt a new mindset, discarding old assumptions about startup funding and embracing the 'new normal' of longer times and more money needed to achieve funding milestones.
• 🤔 Founders should be relentlessly resourceful and pessimistically persistent, not taking any investment commitment for granted until the funds are securely in the bank.
• 💡 The advice for founders is to think strategically about their runway, whether it's 3 months in survival mode or 12 months for strategic planning, with a focus on extending their runway and securing funding.
• 📊 Founders are encouraged to build their startups to a point where they don't need investment, as this is the best time to attract investors and negotiate better valuations and equity.
• 📉 The speaker predicts a mass wave of startup shutdowns due to the new funding reality, with many startups unable to secure further rounds and facing financial collapse.

Q & A

How has the funding landscape for startups changed in 2024 compared to 2021?

The funding landscape has shifted significantly, with a new normal that emphasizes a 'flight to quality,' favoring startups that are further along and have demonstrated product-market fit and revenue generation. The days of easy money and quick funding are over, with a more disciplined approach to capital required.

What is the speaker's background in the startup funding world?

The speaker is a seven-time funding founder with two exits, having experienced success during the web 1.0 era and selling a company in 2017. They have stayed on top of trends, talking to investors daily and advising founders on the changing landscape.

What is the current time frame for checks to be written and received by startups?

In 2021, checks would typically be received within 4 weeks, but now startups are waiting 6 to 12 months, indicating a significant slowdown in the funding process.

What does the speaker mean by 'pedigree startups'?

Pedigree startups refer to those that have a strong foundation, are further along in their development, and have demonstrated quality, such as product-market fit and revenue generation, making them more attractive to investors in the current climate.

Why are investors taking more time in the investment process?

Investors can afford to wait and take their time due to the market conditions, which favor a more cautious and discerning approach to funding, focusing on startups that have proven their viability and potential for growth.

What advice does the speaker give to founders regarding the mindset for raising funds in the current environment?

Founders need to be relentlessly resourceful, pessimistically persistent, and should assume that funding will take longer and cost more. They should not rely on past experiences or expectations from previous years.

What does the speaker suggest is the best time to raise investment?

The best time to raise investment is when you don't need it. This position of strength allows founders to negotiate better terms and valuations, and it attracts investors who are interested in a solid business with sustainable revenue.

What are the implications of the shift in funding for early-stage founders?

Early-stage founders will need to find investors in the 'longtail' or less conventional places, as the standards for funding have reset and the focus is now on startups that can demonstrate significant progress and revenue.

What should founders do if they are in survival mode with only 3 months of runway left?

Founders in survival mode should be relentlessly resourceful, exploring all options to extend their runway, which may include personal sacrifices or unconventional means of generating income.

How has the traditional funding round progression changed according to the speaker?

The traditional progression of funding rounds has shifted, with each stage now requiring the metrics and maturity of the next stage. For example, a startup seeking a seed round should have metrics that reflect an A-round company.

What was the 'extinction event' of 2023, and what does it signify for the startup ecosystem?

The 'extinction event' of 2023 refers to the disappearance of 3,200 known startups, which wiped out approximately $246 billion in funding. This signifies a mass exodus and a warning of more shutdowns for companies that were built with the expectation of easy funding like in 2021.