Financing in a Venture Capital Slowdown – Company Law and Company Law

After hitting a record high in 2021, a recent report shows venture capital fundraising is retreating globally, falling 33% from Q2 to Q3 of 2022. . Nationwide, dry powder, the amount of capital raised by investors but not yet deployed, reached a record high. Locally, Colorado funding remains above pre-pandemic levels in the third quarter of 2022, with the Denver/Boulder metropolitan area ranking his 10th fastest-growing startup city in the U.S. It has been.

As venture funding slows amid economic uncertainty with a potential recession looming, startup founders are aggressively taking strategic steps to navigate funding in the changing venture environment. can teach.

Build relationships and look to existing investors

Prior to raising capital, founders should rely on their network to strategically build relationships with investors and experienced advisors. In a tougher economy, investors are more likely to support businesses already in their portfolios, so founders should seek investment from existing investors first.

For founders who don’t have existing investors to rely on, it’s even more important to take the time to network and rely on trusted advisors to connect with investors. As face-to-face meetings and events proliferate, founders can use this quality face-to-face time as an opportunity to build new relationships and deepen existing ones.

Change your mindset and adjust your expectations

In a downturn, founders should expect the fundraising process to take longer and require more scrutiny and due diligence from investors.

Despite the dry powder surplus, investors are becoming more cautious about the companies they invest in given the broader economic climate. As previously mentioned, this means that finding the right investors who believe in the founder and the founder’s vision takes time to identify and meet.

After a company finds a good investor match, it may take longer than in recent years to reach agreement on valuations. Investors will take into account recent market developments in valuations, but founders will still want the valuations they could have had had they raised during the upturn.

Other economic and controlling provisions may be negotiated more tightly, but the strongest investors typically seek valuation alignment rather than claiming huge control, even in weak markets. It depends on

Do your best in pitching and due diligence

Founders need to be prepared to do their best amid heightened investor scrutiny. Arrive at the table with the following preparations:

• Be proactive about today’s economic climate and explain how your company plans to respond.




• Refine and enhance your story, value proposition, and business plan.




• Work with an experienced advisor to ensure your business is investment ready. Compile documentation of current obstacles, including concerns about capitalization, employees, and ownership of intellectual property.




• Rely on your advisor to prepare for pitching and practice to avoid common pitfalls and mistakes.




• Demonstrates ability to make sound financial decisions. Demonstrate sustainable spending habits and modest burn rates to minimize investor risk.




• It addresses capital efficiency, the ratio of capital expenditure to revenue generated, and informs the company’s path to profitability so that investors have a clear understanding of the long-term growth and scalability potential of the business.

Partner with an experienced advisor

Venture capital slowdowns may test founders’ resilience, but startup founders are known for their tenacity and work ethic. Experienced advisors with a practical approach and deep business knowledge help founders and investors find common ground and maximize their companies’ fundraising efforts in the current venture capital environment.

The content of this article is intended to provide a general guide on the subject. You should seek professional advice for your particular situation.