Matt Cohen
The market has taken a massive turn in recent months. The second quarter was the first time deal value fell below $77 billion since the fourth quarter of 2020, and this past quarter has seen the lowest amount recorded for a single quarter since the start of 2021. There’s been a massive drop in how much investors are funding companies, especially startups.
Due to this environment, funds can no longer be just a source of capital for startups. As the market tanks, funds need to become more valuable to their startups because there are fewer deals happening. It is important for founders to recognize this and leverage their VCs during these times.
When the pace of deals slows, investors start paying attention to a company’s infrastructure and fundamental business. Although a downturn can be viewed as negative or challenging for a company, it can be a great time to evaluate internal processes and see what needs improvement, what isn’t working and what needs to change.
Rather than the main focus being on the next funding round, founders have the opportunity to focus on product, operations and revenue. This can be a chance to reprioritize and rebuild.
Funds can do that, too.
People first, then profit
Having the right people in your corner when you’re first establishing your fund is critical. For instance, the Entrepreneur First program helps entrepreneurs who still have day jobs find people who would be good potential co-founders. It backs founders and their early startup ideas. The aim is to always put part of the earnings back into the company to grow its operations and foundation.
The types of infrastructure VCs are building range from networking and education to operations.
A great example of this is the Sequoia Arc program, which focuses on company building and structure and was designed for seed-stage founders actively working on an idea, company or product. Arc helps companies get started by building upon their idea and scaling and works to bring companies from an idea to an eventual IPO.
A relatively new fund of funds, Recast Capital, recently launched its “Enablement Program,” which supports and invests in up and coming venture managers. The program aims to help GPs of venture firms in their early days with educational services and assists them in learning the ropes.
At Ripple, we’ve launched the RippleX Fellowship program to help university students learn the basics of entrepreneurship and venture capital and how to transition into the professional world. This type of infrastructure is the key to nurturing the next generation of VCs and founders, and it’s easier to dedicate time to these important pursuits when the pace of deals isn’t frantic.
VCs have long known that adding more than just money can have a large impact and lead to more innovation in the entire ecosystem. It allows investors to offer their own advice and maybe even open doors to opportunities that founders wouldn’t have had access to.
Giving founders capital is great, but it’s also necessary to give them all the tools they need to build their companies, funds or careers successfully. During the last investment cycle, VCs learned how important having a competitive advantage can be, and there is no exception during this slowdown. They’re investing in the infrastructure needed to capture more value during the next wave of innovation and generational company building.
In order to stand out, funds must prove their worth and value. This downturn can be a pivotal time to restructure and reevaluate what can improve a fund in its current state. It is imperative to provide founders and future fund managers the support and resources they need to continue and grow.
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