Raise Now or Wait Until Next Year?
I've had a dozen founder conversations lately that start something like:
"I'm trying to decide if I should try to raise a new round now, or to hold off until 2024."
Of course every situation is unique, so the answer is “It depends.”
When in doubt, however, I default to the adage of "Raise money when you can."
So if you're going to want more equity capital someday, and the business has had positive momentum in the last quarter or two... you may want to seriously consider doing a raise soon. Following are a few more thoughts and data points from what we are seeing today.
What's It Like Out There Now? Are VC Deals Getting Done?
Six of Burst's portfolio companies raised new, outside-led, priced rounds of VC this summer. That's more than any quarter since 2021. So yes, things are getting done.
However, it is a buyer's market, so courtships tend to take much longer (often 3-6 months between initial meeting and term sheet) and very few founders are able to create an auction from multiple term sheets. So if raising in 2021 required a one-month sprint of a founder's full attention, raising now is much closer to the proverbial marathon, where it may require 25% attention over a much longer timeframe.
What Are Valuations Like?
Every company and situation is unique, so the only way to get a meaningful price estimate is to test the market and see what investors offer.
That said, yes: average startup valuations are much lower than they were in 2021. We have seen several examples of companies that grew their revenue and users by over 200% since their last round... and their valuation increased 10-20% in that corresponding time period.
If you would like to hear some more specific (though anonymized) benchmarks on this, let me know.
Will a Growing Company Get a Better Valuation Next Year?
Maybe.
Sure, in theory a company with $5 million revenue will be worth more than it was at $3 million revenue. If all else remains equal.
However, if unit economics worsen, growth slows, cash is tighter, or the macro environment worsens... then valuation might actually be lower in 6-12 months despite higher revenue.
In Conclusion
Deals are getting done, but they generally require time and compromise. So for most companies that want to raise new VC within the next year, I suggest starting the process sooner than later.