Plan ahead. Get funded. Survive. Achieve.
No spoilers here: 2023 has been tough. Investment in the tech space is still rebounding from inflated valuations and capital isn’t as fast and loose as it used to be. Bad news? It’s not over yet. Good news? You and your startup are survivors. Time to start thinking ahead and look to your next funding rounds.
Venture Capital is down
Investors, right now, are keeping their cards close to their chest. Their check cards, that is. Tech capital has dried up and while it’s never been a walk in the park to seal a deal, things are harder than ever. Multiple factors are adding to the doom and gloom. Aftereffects of the COVID-19 pandemic, Russia’s invasion of Ukraine, inflation, and the collapse of major institutions like Silicon Valley Bank and Signature Bank are affecting you, even if indirectly. Throw in the Federal Reserve’s rate hikes and you’ve got yourself a recipe for disaster. Trust us, we know.
We also know that every founder and startup that survives this drought will be able to tell the same story—regardless of their industry.
Why funding rounds are harder than ever before
Access to funding rounds has become more difficult because of the inflated business valuations that distorted the industry between 2021 and 2022. Let us explain.
Investing in the techsphere has tanked. It’s not a secret, in fact it’s happened before and it may well happen again. Businesses use their capital funding to increase their valuation, despite the fact it’s money they don’t actually have. The bigger the capital, the bigger the valuation. Think of it like bubble gum. To potential financial backers on the outside, it looks like business is booming. Guess what? They jump on board, too. After funding rounds a plenty, overstuffed tech firms begin to go stratospheric and expand in every direction.
But then the bubble bursts, and those firms that looked like a sure-fire bet can’t deliver and everyone is out of pocket. No more investment overkill, no more gambles. No more FOMO. From now on, safety first. Welcome to 2023.
Those valuations have now shrunk. A lot. As an industry, the tech workforce has been dramatically reduced as businesses and startups look to secure their future. Today, valuations are leveling out in multiples between four and eight. That’s in stark contrast to the high-teen figures swirling in early 2022. It’s also much more realistic, as VCs focus on supporting existing investments—through bridge financing—rather than backing a new horse.
New founder? Well, you’re probably caught somewhere between a rock and a hard place right now. You’re still fundraising, but need to prove capital efficiency and at least six months’ of fiscal runway. How are you supposed to have capital in the bank if you’re still fundraising? Here’s our message: run lean, hustle, and do everything you can to drive up your MRR and ARR.
Thankfully, we are on the cusp on a new age of Venture Capital. Though the financial hangover is still yet to fully pass, there is light ahead. In fact, here at Diadem Capital we’re extremely confident that startups who make it through this rough patch can make a huge impact in their funding rounds in 2024 and onwards. You just need a little know-how.
Funding rounds as a need, rather than a want
Hear us out on this one. Investment comes from confidence. Confidence comes from successful planning that considers every scenario—not just those focused on growth. Whether it’s Venture Capital, angel investment, or bridge financing you’re chasing, proving to your would-be backers that they’re in good hands is half the battle.
We know getting through this year is a challenge. Getting through this year and achieving your goals even moreso; but here’s a question. Do you actually need funding rounds? Sure, at some point you will. Truth to be told, it’s absolutely vital. We’re talking about needs over wants here—and there’s a difference. Pitches are ready, meetings are scheduled, but is it business critical? So many financial brokers will always push the profit angle. More money, means more longevity, means more chance of success, right? Wrong.
In fact, deciding not to push the big funding button might be the best decision you ever make. A self-sufficient enterprise, capable of making sensible decisions based on forecasting data, waltzes into any future investment discussion and calmly says:
I know what I’m doing.
I’ve allocated my expenditure appropriately.
I’m not overreaching.
My round value is realistic.
My model works.
It’s exactly what investors want to see. Even in a difficult market, Venture Capitalists know an opportunity when they find it. The point is, you’ll know when the time is right to find funding. Finding the right investor, means acting at the right time and for the right reasons. That being said, for startups with constant ARR, non-dilutive funding can generate up to 30 percent of your revenue in the form of a loan. No loss of equity. No suppressed valuations. Just getting by through good decision-making.
As for us? Well, we firmly believe that Venture Capital will bounce back stronger than ever in 2024.
Funding rounds will change in 2024
No one can honestly say what will happen tomorrow. That being said, we can make informed predictions on how the techsphere will respond to the state of Venture Capital—and things are looking up.
Here at Diadem—as of May 2023—we’ve over 560 VCs, CVCs, and FOs, approved, vetted, and signed up to receive our deal flow. That’s 560 investors who’ve put their hand up and say, “yep, we’re ready to put our money where our mouth is and invest in the next great thing”. Now investors rarely just support one company, so how many opportunities might come from that initial figure of 560? Trust us, that number is growing, too. People want to get involved. If there’s anything to be learned from the demise of ballooned and unrealistic valuations, it’s this: quality trumps quantity everytime.
It’s our belief that successful funding rounds are going to start trending again very soon. For startups, 2023 is all about resilience. Market sentiments are settling, driving financial impetus, with investors encouraged to focus on value and fundamentals instead of politics. That’s why we’re supporting tech founders by revolutionizing the investment process, removing barriers and the need for a Silicon Valley zip code.
Investing in the future of tech
We put founders first. Curating bespoke deal flows to match investors and startups through quantifiable data, let your next investment find you. Diadem Capital; our platform, your future. Join us today.