Cash management, extended runways and a focus on business fundamentals highlight the major themes investors have offered in advising founders on what's coming in 2024.
The advice continues hallmarks espoused throughout 2023 as the startup economy shifted to a tighter fundraising market not seen in more than a decade. The national trend has not left the Portland region untouched.
Last week we caught up with a couple investors from out-of-state funds, who are actively scouting deals locally, on what they are telling founders as we head into the new year.
This week, we are catching up with three Oregon-based investment partners whose insights could help local founders.
Deepthi Madhava, partner at Oregon Venture Fund
Do you expect to invest in many new companies next year? If so, what will it take for a founder to close a deal with you? In 2024, we aim to invest around $15 million in top startups in Oregon and Southern Washington, particularly those targeting major market opportunities and led by strong teams. Our new investments have doubled this year, and we're optimistic for 2024. One change for OVF in 2023 was to expand our strategy to include investing in remote companies with key personnel that are based here, adapting to the trend of remote work. The OVF team and our venture partners are keen to support ambitious founders with a learning mindset, focusing on companies that deliver critical solutions with a tangible impact on their customers’ financial performance.
What general fundraising advice are you giving founders? Before accepting funding, thoroughly understand the fund you're engaging with. This due diligence might extend the fundraising process, but remember, you're entering a relationship with the investor for around 6-10 years. It's crucial to ensure you're partnering with a group that offers more than capital – they should be capable of making valuable introductions, assisting in talent acquisition and adding overall value. This might also provide an opportunity to bring in different investors with unique strengths onto your cap table. In the current market, longer diligence cycles are common. Rather than viewing this as a setback, use the time to build trust and a strong relationship with your investors.
Any other insight you are sharing with founders? We acknowledge the challenges founders have faced in raising capital this year and possibly into the next. We empathize with founders and understand the importance of wellbeing. Surrounding yourself with the right colleagues and advisors is crucial during these times.
Diane Fraiman, partner Voyager Capital
What are you telling your portfolio companies to focus on in 2024? In the same way that many of our portfolio companies sell solutions to address enterprise digital transformation — specifically around operational efficiency and automation — it is important that our portfolio companies think about their own operational efficiency. Over the last few years, it’s been easy to throw money at people and programs without really taking stock of the return on investment they delivery. That now needs to be addressed — whether you are focused on getting to cash flow break even or accelerating growth through your spending, it needs to be done in a more efficient and measurable manner. While this has always been smart business practice, I think we have gotten away from it over the last few years.
In 2023 Voyager started raising its sixth fund. How has your process been? What are you hearing from limited partners? Voyager Fund 6 is about 50% complete. Whether you are raising for your portfolio company or a venture/private equity firm, it is slow but steady. One of the things that is noticeably different from our last raise in 2018 is that potential limited partners are interested in early stage investing again after their growth stage managers did not necessarily deliver in the last 4-5 years as predicted. As an early stage tech investor, this is a good thing as we get back to a reasonable investment environment for valuations and dollars required.
With a continued challenging investment environment, what are your expectations around company closures next year? Do you expect to see a big wave? There is considerable consolidation occurring in several markets driven by private equity firms actively driving exits. I think we will see this translate into a number of both exits for companies in our market, as well as closures for those that can’t reach their milestones.
Julie Harrelson, managing director of Cascade Seed Fund
What are you telling your portfolio companies to focus on in 2024? No crystal ball here, but it seems the prevalent advice which is easy to say and hard to do is get to profitability in order to control the company's destiny. That's a simplistic answer to a complex set of challenges. Best way to sum it up is even if you are raising, focus on how you will get through this year with no additional investment and make considered changes as quickly as is prudent to do so.
How has the early stage deal flow been looking for you in the back half of this year? Early stage deal flow has been strong. We are seeing a high number of quality opportunities with experienced founders developing businesses in adjacent spaces to their previous work such as Digs and Upwardlii. We have invested in a higher number of pre-seed deals this year and are seeing more pitches for bridge rounds. These are either growth or survival rounds. In either case, additional investment is needed. The key in times of financial constraint is to face the facts head on and create options. If you've run the gamut and no one is investing, it might be time to reconsider options.
What is your No. 1 piece of advice for fundraising in 2024? Take a breath when you can and focus on the fundamentals, especially cash management. And, have a capital light mentality when making decisions.
