It’s interesting observing the current fundraising climate for startups, both as a VC myself and just as a general market observer familiar with the goings on of other firms and startup.  For the record, I am very much actively looking at new investments now as well as helping existing companies in the portfolio who are considering raising add’l funds in the near to intermediate term. 

Virtually all fundraising right now is harder than it was 12mo ago, but there are subtle differences that I’ve noticed.  Based on both direct and indirect data points, it seems that raising a Ser A round is only moderately more difficult than say 12mo ago.  All the entrepreneurs out there raising a Ser A round right now may disagree, as early stage VCs are being a little more discriminate and also strongly encouraging capital efficient budgets.  But at the end of the day if you’re investing in a pre-revenue or even pre-product startup, by definition you’re expecting it to grow over the next 5-8 years.  I have no idea how long or steep the current down turn will ultimately be (nobody does), but it’s a virtual certainty we will return to a growth period at some point within the next 5-8 years.  And so Ser A companies are still getting funded at a decent rate.

At the other end of the spectrum, significant late stage VC/growth rounds are getting closed.  A company with $100M+ in revenue that’s profitable and still growing rapidly is very valuable.  Yes, investors might have a difficult time exiting via IPO or acquisition in the next 12-18 mo but such companies are likely to only increase in value from here and in most cases these late stage investors have very modest downside risk (due to liquidation preferences).

So who’s getting squeezed?  Basically every startup in the middle of those two points, as far as I can tell.  If Ser A and Ser D+ (i.e. late stage) rounds are 10-20% harder to close than a year ago, then Ser B, C, etc rounds are probably twice as hard or more in the current climate.  Potential new investors want to see more traction that business models are working.  Having not been involved with the companies for the last several years, new investors require longer track records of growth than they used to in order to be “convinced”.   Expect to see a larger portion of follow-on rounds being done by existing investors (“inside” rounds) in the coming months.

The most challenged companies I’ve seen are those that raised their first or second VC round at extremely high valuations during more optimistic times.  To the extent they’re still unprofitable, their valuation “overhang” acts as a major drag in raising new funds.  These startups face a handful of options, none of which are pleasant:  a down round at a significantly lower valuation than the last (diluting existing shareholders), drastically cutting burn to reach breakeven quickly, or at worst winding down operations.  Those that are acting decisively with either of the first two options significantly increase survival chances in the long run.