3 Reasons Rookie Founders Should Ignore Doom Mongers

There seems to be a contest going on online to give founders the most pessimistic advice possible. A quick scroll on LinkedIn or Twitter would have even the most optimistic CEO shutting down their company and running for the hills. Such blatant catastrophizing might be good for views and tastes, but that's nonsense.

To begin with, the venture capital market cannot be treated as a homogeneous mass. The advice given to founders raising a Series C cycle should be entirely different from that of founders raising a Series A seed or cycle. Yet online commentary rarely makes this critical distinction, falling back on overly negative and unnecessary generalizations. .

This is also not the first time that we have faced a recession. Many founders and investors will not have lived through the dotcom bubble or the global financial crisis. For those who have, the current circumstances seem familiar and not unprecedented. Like all dark economic times, there are challenges and risks, as well as opportunities.

For founders who are in the early stages of building a company-backed startup, i.e. before and including raising Series A, there is reason to be cautiously optimistic.

Most comments on the overall health of the venture capital market focus on a short period of time. Headlines are saying venture capital funding is down in 2022 compared to 2021. Digging deeper, there are good reasons not to get too alarmed.

First, seed funding is the least impacted and still stood at $34 billion globally in Q3 2022. Down from 2021 of 25% QoQ and 39% YoY is a somewhat meaningless comparison. Venture capital could not continue to grow exponentially and this correction was only a matter of time. Additionally, and to make an obvious point, billions of dollars are always going to early stage companies around the world - the supply of capital will naturally fluctuate.

Second, when it comes to venture capital funding in the UK since 2013, the long-term trend is up, with 2021 being an anomaly. Comparing 2022 to all years before 2021, funding numbers are still relatively healthy. And that makes sense. As a (pre-)seed stage investor, exits are so far off that prevailing macroeconomic conditions have relatively little impact on decision-making.

The danger for founders is to set expectations thinking that 2021 was a normal year and that what needed to be lifted then is the same today. It has become harder to raise due to capital reduction (compared to 2021) and risk appetite recalibration, but founders are still closing rounds. The market has changed but remains open.

For Series A funds, 2021 has been a tough time. Ratings skyrocketed and fundraising processes moved at an incredible speed, making due diligence and solid decision-making difficult. For many premium unbranded funds, it was difficult to gain access to top companies. In 2022 things are back to normal.

Looking again at the comparison to 2021, Series A funding in 2022 is the least impacted – down just 23% year over year. This reflects the fact that many strong companies have created and maintained an appetite for funds to invest in them.

The Series A recalibration impacts the Founders in several ways.

Most notably, valuations have moved off their 2021 highs. Huge rounds at lofty valuations, celebrated in 2021, now look exuberant at best or reckless at worst. They also create headaches for founders who are struggling to grow in the...