Trying to raise money in the current economic environment? Brace for a brawl.
That’s one takeaway from a venture capital panel that attracted multiple investors eyeing Southeast startups for opportunities.
“It’s hard as hell right now,” said Jason Caplain, co-founder of Durham-based Bull City Venture Partners, during the “Coffee with Virginia Venture Partners” Friday morning, an online event.
“If you’re a quality company and you’ve got an incredible team and strong economics … you’re able to get capital and, not only that, but if the competition to get in the deal is super fierce,” he said. But if you’re what he calls an “A minus or B company,” the capital has “frozen up.” Investors are “taking their sweet time right now and they can because as they wait, the markets continue to crater.”
Caplain said to look at your numbers. If you’re a Software-as-a-Service company, find out what the best companies’ metrics are and “look at what you need to get to their level.”
“I think this is a good time to hunker down and try to refine your business,” Caplain said.
Caplain is telling his portfolio companies to shrink their burn and streamline “so they’re not in the position where they have to raise,” he said.
The silver lining? Failing faster
There are silver linings in a tough environment – though Kristin Harjes, vice president at Motley Fool Ventures, said you might have to “squint” to see them.
She said the opportunity to “fail faster” might actually benefit an entrepreneur in the long run. In another environment, some companies could “get away with” bad product-market-fit for a long time before the ultimate failure.
“This could be an opportunity to fail quickly and move into the next thing that’s going to be even better,” she said.
Caplain said another silver lining is that recruiting is getting easier.
“That has been really hard over the last few years,” he said, adding that in the Southeast more and more people are moving in from New York and the Bay Area, which is “fantastic” as portfolio firms work to build up their teams.
Harjes said the downturn could be an opportunity to make less expensive investments – such as in people and culture, which will ultimately help recruiting and retention.
“Control what you can control,” she said.
It’s also a “really good time to get to know your investors,” she said.
How to get the deal done
Investors say deals can still happen.
“Regardless what time it is, the good deals are going to get made,” said Sotir Koev, co-founder of Koev Brothers. “At the end of the day, you just have to work harder to get your deal done.”
Caplain said there are ways entrepreneurs can stand out in pitches – even without revenue. He pointed to one example from the Bull City portfolio, a Triangle-based firm called ArtusLabs that was acquired by Perkin Elmer. Its founder, Robin Smith, “before the company was even built,” was able to secure a six-digit customer, Caplain said. That customer pre-paid to lock in pricing, making it particularly attractive to Bull City.
“I thought that was really creative,” Caplain said. “It helped accelerate the story.”
Caplain advises entrepreneurs to “look for creative things like that that give you a little bit of an edge.”
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