Founders in the Portland metro have had several years of rapidly rising venture capital coming into the region, including last year's eye-popping $1 billion in local deals, a sum that surpassed the dotcom days.
This year, is a different story. And next year could bring a rare investor pullback or a more investor-friendly environment.
Talk to almost any local founder and you will hear that it has never been easy to raise money here. But, things might be getting even harder.
We asked five local investors what founders should be expecting if they go out to fundraise in 2023.
Diane Fraiman, partner at Voyager Capital
What advice do you have for founders planning to raise next year?
As the old adage goes “Cash is king." If you have it, spend it wisely and judiciously. If you need it, plan on it taking longer and at valuations much more "realistic" to real market conditions. For an early-stage investor like Voyager, this actually plays much more squarely into our core investment thesis than the last few years of runaway valuations and burn rates that outpaced results.
What should founders focus on in talking to investors?
For founders out raising in this environment, make sure you know your market well, understand how you clearly differentiate your solution, have a go-to-market plan that is realistic to current market conditions, and most importantly, have clear and realistic milestones outlined for this round that are measurable and achievable.
Nitin Rai, founder, Elevate Capital
What is your advice for founders who are planning to raise capital next year?
My advice is to defer funding from new investors — focus on extending runway if in development mode by managing costs/optimizing the company on revenue and if possible becoming breakeven or cash flow positive. Go back to your existing investors for additional capital by offering incentives to invest.
What should they be expecting from investors?
Investors are holding on to their dry powder and largely investing in value deals or looking bargains.
What elements of their business should they focus on in their pitch?
Their strong product market fit and competitive advantage, cost efficiency that can get them through the downturn so they are ready for growth when markets return.
Julie Harrelson and Robert Pease, managing directors, Cascade Seed Fund
What are you telling founders to expect next year if they want to raise capital?
Likely to be a tough one. Prepare for long lead times and lots of conversations. We have heard from many founders that they are planning to raise in Q1 and Q2. That means lots of optionality for investors.
What should they be expecting from investors?
Valuations became pretty frothy in the last couple of years. Expect lower valuations, flat or down seed rounds. Expect more competition for the dollars available. Strong deals are and will likely get funded.
What elements of their business should they focus on in their pitch?
Lead with momentum metrics such as ability to generate revenue and how that grows. Non-revenue related metrics should be secondary. If you are pre-revenue then data around usage, cohorts, pilots/trials will all inform the revenue potential question, focus on business fundamentals such as team, cash flow, planned use of funds and product market fit.
Deepthi Madhava, principal, Oregon Venture Fund
What is your advice for founders planning to raise next year?
Get smart money in with investors who can support you with follow-on investments. If you can raise funds now, do so, so you don't have to depend on raising in 2023. Follow-on and insider-rounds from your current investors may need to be relied upon more than in the past.
Re-look at your operating plan to extend cash runway and think about efficiency in new ways. Reduce spending, if it doesn’t impact growth and retention and slow down the pace of hiring. We are also seeing some companies reopen their most recent round to infuse more cash and provide extra runway.
What elements should founders focus on in their pitch?
In tougher fundraising environments, it is important to show near-term focus and a path to real revenue. Financial model viability and a reasonable operating plan is very critical especially given the current macro environment. Interestingly, we have not seen the widespread, dramatic customer buying behavior changes of 2008/09. If this does come, discretionary products will feel demand pull back the most while measurable ROI value props will be more highly valued.
Angela Jackson, partner, Portland Seed Fund
What will it be like for founders raising money next year and what should they do?
This is not 2021. We were overdue for a correction, and it is here. The market has shifted from overwhelmingly entrepreneur-friendly for at least eight years, to investor-friendly. You'll have the most success when you know where you are in these natural cycles. Running out of cash kills companies, not dilution. Structure your raises as frictionless as possible to get cash in the door.
What should they expect from investors?
Some investors are stymied by fear of recession/inflation, especially corporates, and will be on the sidelines for a while. But not everyone. Very sophisticated high-net worth individuals who can sacrifice some liquidity now for better returns later find shelter in venture capital and private equity.
How should they focus their pitch?
The fundamentals. Revenue. Get to it sooner. Cash management — really understand your costs. These are different times. Money is no longer free.
