Between the Reserve Bank significantly raising the interest rate and warnings of an impending recession, it’s unsurprising to see more pessimism entering the conversations about VC financing. Most recent news articles highlight the diminishing levels of investment in 2022, when compared to 2021, and foreshadow that investors are likely to further tighten their belts for the remainder of this year (and potentially beyond).
Trends in VC Financing:
We’re seeing many reports about the slowing VC marketplace, including that:
- The number of unicorns minted in April 2022 is lower than that in 2021 (34 this year vs 54 last year).
- April saw $47 billion in VC investment globally, which is the lowest amount in 12 months and a 10% month-over-month decrease from March 2022.
However, this doesn’t signal that it’s all over for startups. In fact, investment is still up on pre-2021 levels – and it’s important to bear in mind that 2021 was an unprecedented year.
Here are some further findings:
- VC funding was up in Greater Philadelphia (up 71%), Atlanta (up 30%), and Dallas (up 18%) in the first quarter of 2022.
- Late-stage deal activity increased in Q1 of 2022, but the total value of the deals decreased. This indicates that interest in investment remains, but the appetite for the large deals we saw in 2021 might be slowing.
VC Trends we’re seeing at CGL:
We haven’t seen much of a slowdown in terms of convertible notes or early-stage investments at the Pre-Seed or Series A rounds. It appears to us that sourcing investment for the Series B and C rounds is becoming more difficult.
Tips for Founders Looking to Raise Money During the ‘Downturn’:
- Industry matters.
Financing for blockchain, supply chain management, renewable energy, marketing tech, and gaming is still growing and is up year-over-year compared to 2021. This trend is reflected in Crunchbase’s April Unicorn List.
- Refine your story.
Your story makes your startup more memorable, more relatable, and more likely to attract investment. This remains true, despite the slowdown in large late-stage investments. By focusing on and refining your story, you’re in a stronger position to find VC funds willing to invest.
- Get your corporate house in order.
We’ve commented fairly regularly on the benefits of a clean corporate house – and we’ll continue to do so. There are no downsides to having your corporate documents in order.
To read more about the benefits of a clean corporate house, read our blog post on corporate cleanup services.
- Reassess your exit strategy.
If your company developed its exit strategy during the frenzy of high value deals last year, it may be time to reassess. Some companies may just need to reassess the likely value they close in later stage deals, while others may need to reconsider plans to float on the stock market.
If you need assistance with VC financing, reach out. Our attorneys would love to help.
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