Coming into 2024, there were reasons to believe that the so-called “VC Winter” would warm up, At least a little. During this “winter”, investors kept their wallets closed after a bull run of rich funding rounds (resulting in over-rich valuations) came to a screeching halt. That is, to the degree that bulls screech when they halt.
The sound bulls make when they slam on the brakes aside, it’s been a rough patch for those looking to raise.
“Idea investing is dead” is a common refrain we have started to hear during this winter chill.
Idea investing (founders getting funded based on an idea before an MVP has been built) never really dies. However, in a frosty environment, the idea better be revolutionary. And the founder pitching it had better have a solid track record. Otherwise, the answer will probably be a quick pass.
Traction Required
Companies with traction, a good story, credible founders, and so on, still managed to raise during this period. But it hasn’t been easy.
For example, when we spoke with Hummingbirds CEO and Co-founder Emily Steele back in December about her company’s $3.3 million seed round, she made it clear the fundraising process isn’t for the faint of heart. Particularly in this environment.
“It’s a rough environment to raise,” Steele said. “You need traction, not ideas at this stage to get funding.”
Not Flooding Back
The data does appear to show that overall, investors have not yet flooded back into the market.
For example, Crunchbase News reports that in the first quarter of this year, Global startup funding reached close to $22 billion, a bit below the monthly average for 2023.
“By all accounts, venture funding will continue to be constrained in 2024,” Crunchbase News Senior Data Editor Gené Teare writes. “Unless the IPO market bursts open with a lineup of companies that slowed their exit plans over the past two years.”
Global Perspective
Keeping with the global perspective, I had an interesting conversation last week with a South African VC executive. He said there may be some cause for hope.
Thaheer Mullins, with Savant Venture Fund, said that fund managers who have been sitting on “dry powder” over the past couple of years may now find themselves under pressure to deploy capital.
“A lot of investors hung back to say, ‘Okay, let’s see what happens with the market’, or ‘let’s be a little bit more cautious about where we put our capital’,” Mullins explains. “‘Let’s also see what happens in the portfolio, do companies need additional bridging capital to be able to make it through the funding winter?’ And that sort of thing. And what’s happened is this just been a build-up of an excess of dry powder. So that’s money that needs to be spent.”
How 2024 stacks up for companies looking to raise is on Localogy’s L24 conference agenda. L24 takes place April 15-17 in Arlington, TX. The final day of the conference will largely be devoted to financial and fundraising issues. This will be relevant to early-stage startups as well as those that have raised Series A, B, and beyond.
To learn more about L24, visit: https://resource.localogy.com/l24
