"Deals are getting done and I think all of us are writing checks right now," Ryan Broshar, partner at Matchstick Ventures, told a room full of eager startup founders in Chicago on Tuesday.
While it may not be as easy to raise today as it was 12 or 24 months ago, there's plenty of opportunity and dry powder for the right investors.
That's according to Broshar; Tim Grace, co-founder and managing partner of LongJump; and Landon Campbell, Chicago seed program general manager for Drive Capital, who discussed how young founders should be looking at pre-seed fundraising during a panel discussion at the second annual TechChicago Week.
Nationally, tech firms raised a collective $37 billion across 2,856 deals in the first quarter of 2023 — the lowest quarterly deal amount since the fourth quarter of 2017, according to a report from venture capital data firm PitchBook Data. In Chicago the decline was even more pronounced as local startups raised around 63% less from VCs in the first quarter of 2023 than they did a year ago.
Pitchbook analyst Kaidi Gao doesn't expect the second half to get much better for startups, he recently told American Inno, a parent publication, and said that a lot of mediocre companies are going to "run into trouble."
The one piece of advice Broshar has for young startup founders looking for pre-seed investment right now is to tell their best story.
"You have to have a good narrative around what you're building and why you're building it," he said. "I think a lot of people at the early stage, where they stumble is that they are not able to tell the bigger vision and bring it back to the reality of where you are today."
Broshar used Elon Musk's success with SpaceX as an example to learn from.
"From the beginning, he always said we're going to colonize Mars. And we were like, 'What are you even talking about?'" Broshar said. "But then he brings it back to [reality]: Today we're building rockets, tomorrow we're going to start a satellite company, and then that could happen."
Broshar added, "So when you're in your pre-seed, make sure you have your narrative of what you're working toward. What is the goal here?"
Campbell stressed the importance of companies doing their own research and coming prepared for every investor they meet with.
"There have been many instances where a founder will reach out and they're building something that is a direct competitor," he said.
While the current environment is challenging, as the nation's top 10 metro areas by venture capital funding have seen VC investing drop a median of 74% in just over a year's time, Campbell said that the market needed some correcting after some of the deals that went through in 2021.
"Focus on being a cockroach, not a unicorn," he told the crowd. "Companies that are able to survive today continue to focus on what's important to the business, maximizing revenue and retention."
Campbell added that he's seeing a large number of extension rounds, or companies that need just a little bit "more gunpowder," to get to a certain milestone or metric. He thinks that beginning next year, the industry is going to see many more companies that have been waiting for financing get more aggressive about fundraising.
