<h3>The tech sector is facing a challenging fundraising environment right now. But how did we get here, and what does it all mean for startups – and investors – on the ground?</h3>
<p>It’s a challenging market for startups and investors. From inflation and geopolitical turmoil to the crypto crash, the economic outlook is gloomy, and the ‘R word’ – recession – can be heard with increasing frequency.</p>
<p>Four leading VCs – Two Sigma Ventures partner Villi Iltchev, FirstMark Capital general partner Beth Ferreira, Redpoint Ventures managing director Logan Bartlett and CRV general partner Matt Garratt – have offered their views on the state of fundraising in 2022 and the general market trends beyond.</p>
<p><a href="https://websummit.com/startups/featured-startups?utm_source=blog&#038;utm_medium=copy&#038;utm_campaign=WS_startups_banner"target="_blank" rel="noopener noreferrer"><img loading="lazy" decoding="async" src="https://web-summit-library.imgix.net/websummit/2222/01/Startups.png?auto=compress%2Cformat&#038;ixlib=php-3.3.0&#038;s=4de0f11232bdbd0be6552729f0b710f7" width="700" height="150" class="alignnone size-medium" /></a></p>
<h3>To raise or not to raise</h3>
<p>“There’s not really a lot happening in Series A or Series B, but I would say even at the seed, you’re seeing a good bit of slowdown as well,” said Matt.</p>
<p>While the number of deals being done remains relatively high in 2022, they are largely smaller in scale, and deal value has noticeably decreased. The issue for many startups is whether they have sufficient capital to see them through a turbulent market or whether they need to raise more now.</p>
<p>“I wouldn’t raise now,” said Logan. “It’s murky. If you have the choice, wait till [September]… if you don’t, go raise, get money in the bank, survive and live to fight another day.”</p>
<p>Beth offered a more pessimistic view, suggesting that many startups may need to raise now to survive: “We don’t know if there’s going to be a better time in six months. If you can figure out a way to give yourself some runway and get more runs on the board, now is the time.”</p>
<h3>The era of wild valuations is over</h3>
<p>There was consensus among the four VCs that the era of speculative valuations is coming to an end.<br />
Villi offered an assessment of how VCs have been behaving over the past number of years, saying “it was a game of winning; it wasn’t a game of picking”. VCs, Villi implied, were more concerned with outdoing each other on valuations in order to win deals with founders than they were in researching and picking promising startups.</p>
<p>Logan was similarly critical: “I think there are groups of companies that need to raise now-ish, and they’re partially being jerked around by the venture capital community who don’t know how to value businesses anymore.”<br />
For a number of years, Villi and Logan suggested, VCs have been focused on out-bidding each other with wilder and wilder valuations for lower and lower stakes in companies.</p>
<p>Villi believes VCs have to go back to basics: “We’re going to go back to a more traditional approach of rolling up your sleeves, doing the hard work, and picking great companies.”</p>
<p><img loading="lazy" decoding="async" src="https://websummit.com/wp-media/2024/02/esYdpWDj-52163319328_eb5a75e65e_c.jpg" alt="FirstMark Capital general partner Beth Ferreira discusses fundraising in 2022" width="650" height="381" class="alignnone size-full wp-image-79406" /><center><em><a href="https://flic.kr/p/2ntuDuC" rel="noopener" target="_blank"> Image</a> of FirstMark Capital general partner Beth Ferreira at Collision 2022: <a href="https://www.flickr.com/photos/collisionconf/" rel="noopener" target="_blank">Sam Barnes</a>/<a href="http://www.websummit.com" rel="noopener" target="_blank">Web Summit</a> (<a href="https://creativecommons.org/licenses/by/2.0/legalcode" rel="noopener" target="_blank">CC BY 2.0</a>)</em></center></p>
<h3>The return of mergers and acquisitions?</h3>
<p>While there is still investment activity in earlier-stage startups, there are challenges for companies at the later stages in an era of lower valuations. “Companies are going to have a hard time fundraising. And that’ll ultimately lead to more M&#038;A, as well,” said Matt.</p>
<p>The big tech companies have been sitting on the sidelines for the last number of years. At a time when there is limited capital coming from investors, those big tech companies now have an opportunity.</p>
<p>As Beth described it, “for larger companies, it’s a great opportunity for consolidation. So as these prices are lower, getting some of those assets today v later makes sense”.</p>
<p>Logan believes this will happen, particularly in the public market where consensus on companies’ valuation is more evident: “I think the boards are now having those conversations of, ’Hey, we used to be worth 15-times revenue. Now we’re worth eight-times revenue. And if we can get 10, 11, 12 [-times revenue] from an acquirer, then we will’.”</p>
<p>Villi, however, disagreed with the other VCs: “In this type of environment, M&#038;A tends not to pick up; buyers get skittish and afraid to take risks.”</p>
<p><a href="https://websummit.com/investors?utm_source=blog&#038;utm_medium=copy&#038;utm_campaign=WS_investors_banner"><img loading="lazy" decoding="async" src="https://web-summit-library.imgix.net/websummit/2222/01/Investors.png?auto=compress%2Cformat&#038;ixlib=php-3.3.0&#038;s=ff487b2d28775d2fbeac37b044fb7a1a" width="700" height="150" class="alignnone size-medium" /></a></p>
<h3>There is still optimism</h3>
<p>While the market at the moment looks challenging, there was broad consensus that the tech sector will rebound in time.</p>
<p>“We can actually be optimistic about the environment here. We’re going to go through a speed bump, and we’re going to see some slowdown, and then, eventually, it’s going to settle,” said Villi.</p>
<p>And macroeconomic trends are still very much in tech’s favour, even if there is a course correction happening at the moment. “You’ve got to believe that markets are going to open up,” said Matt. “And this is venture; it’s a long-term hold. So I think you have to be very optimistic, medium- to long-term, or else we shouldn’t be doing this.”</p>
<h4>Engage with more of what&#8217;s going on in the world of startups and investment by signing up to the Web Summit newsletter today.</h4>
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<p><em><a href="https://flic.kr/p/2ntvStx" rel="noopener" target="_blank">Main image</a> of four leading VCs sharing insights onstage at Collision 2022: <a href="https://www.flickr.com/photos/collisionconf/" rel="noopener" target="_blank">Sam Barnes</a>/<a href="https://www.websummit.com" rel="noopener" target="_blank">Web Summit</a> (<a href="https://creativecommons.org/licenses/by/2.0/legalcode" rel="noopener" target="_blank">CC BY 2.0</a>)</a></em></p>


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