As entrepreneurs make the funding roadshow rounds, local investors have advice: Make sure you really need the cash.
Startups are competing for capital in a tight funding market that’s forcing some entrepreneurs across the nation to consider down rounds – raising capital at lower valuations than previous fundraises.
Data recently released by Carta, an equity-management platform, showed venture capital is still down 58 percent year-over-year. And 20 percent of all rounds raised in the second quarter through Carta were down rounds, the second-highest quarterly figure of the past five years, according to the company.
Triangle angel investor Elaine Bolle, a co-founder of the new RTP Angel Fund, is advising cash crunched portfolio companies to conserve their cash.
“If you thought your cash was going to last six months, figure out how your cash is going to last 12 months,” she said, adding that creativity is key. She advises companies to “figure out how to get a client to pay for a pilot,” or pursue grant money.
Bolle said it’s a particular issue with companies who may have raised a seed round in 2021 or early 2022 at a high valuation when the market was “really going crazy.”
“Now they want to raise a round … but they haven’t yet made enough progress to really justify a higher valuation because those Series A valuations are coming down,” she said. Bolle tells founders to be persistent and keep calling investors if they really need the capital. “If you have to bite the bullet and take a down round, there are worse things in life.”
John Replogle, who cofounded Raleigh impact investor One Better Ventures, said his firm took a step back during Covid, making the decision to “slow down the investment side and focus on the operating side to make sure the investments we deployed were as successful as possible.” Replogle calls it a “pause,” and says it doesn’t mean the firm won’t do deals.
But like Bolle, he said he’s telling startup founders to be disciplined in 2023.
“There’s a great model of wartime versus peacetime leadership, and this is a time to be a wartime leader, to focus on the core and take care of the team and to be really product on all forms of investment,” he said. “Protect your cash, but stick to your knitting. This is not a great time for companies to be expanding overly aggressively.”
There is cash to be found in the market – it just requires a big sell, as recently-successful funders have told Triangle Inno.
Durham-based Arpio, for example, recently raised nearly $8 million, with CEO Doug Neumann crediting the customer story in a recent interview.
“Our customers are really excited about what we’re doing for them, so we were able to tell that story to the VC firms and show them how much opportunity there really was,” Neumann said.
In the second quarter of 2023, the “South” region, which includes North Carolina, rose from 18.1 percent of all deals to 20.1 percent, according to Carta.