Once you’ve worked through your current and future fundraising plans, take a look at your last raise. This is last because what’s done is done… but it’s relevant because it affects your investor relations, and narrative. Plot your metrics at the time of your last round, taking into account for the market dynamic at the time. If you raised in late 2020 through early 2022, it was probably an “inflated” environment. Based on your revenue, margins, and growth rate at the time, what PCG multiple did you command?
- If it was a multiple of 1-3, there may have been dynamics that led to you taking the terms you could get. Perhaps you were raising without a prior founding track record, perhaps you weren’t raising with a coastal VC network, etc. This might mean that you can actually do well in this market, if you can change the game and get a fair valuation.
- If it was a multiple of 4-8, that was probably in the context of reasonable.
- If it was a multiple of 10+… you might have signed up for an uphill task. That might be okay, but it just might mean you have big shoes to fill.
- If it simply doesn’t work because you were pre-revenue, or it’s 20++, then you were probably a pre-seed / seed / A-ish company that was doing a “vision” raise, not a metrics raise. Something similar to #3 applies, except you hopefully knew you were signing up to deliver on metrics, the next time around.
Fortunately, investors are all aware of the market dynamics, and almost every startup is going through something similar. So you’re not in for a “difficult” conversation… but it’s worth being mindful of the temperature of your existing investors. They are probably pretty bummed that most of their early stage investments from 2020 and 2021 are likely to face flat rounds, down rounds, or go out of business. To be clear, you have the harder job as a founder (all your eggs in this basket, with the weight of an entire company and all the jobs you’re supporting), but a little empathy never hurt anyone.
So what can you do to manage your investors in this environment? Communicate, communicate, communicate. Again, everyone’s going through a hard time, no investor is going to think any less of you, if you’ve worked hard and acted in an upstanding manner. Well… the good investors aren’t going to think less of you.
And the bad ones? There’s nothing you can do, they have to find their own inner peace with the nature of their industry and job.
Access all parts of our Startup Valuations & Fundraising: Summer 2022 series below:
Part 2: The Flavors of Fundraising