🧰 Venture Tools #008: How to Raise Money in a JOMO Market

Plus tools on Angel Investing and Operating

The Twin Jet Nebula - NASA

The funding market for startups has pivoted more quickly than SBF’s jet changing course for a non-extradition country.

The FOMO fundraising tactics which were wildly successful only 1 year ago will fail today.

Venture investors are currently in JOMO mode (joy of missing out). If you do not adapt your fundraising strategy, you are likely to fail.

The chart below from

AngelList

State of Venture Report Q3 demonstrates the lowest rate of positive venture activity (share of deals marked-up) ever observed in their dataset.

Deal volume declined by 4% and only 63.4% of startups raised at a markup (24% decline YoY).

AngelList State of Venture Q3 2022

‘But… the record levels of dry powder?!’ I hear you whimper, as you dose another Soylent laced with amphetamines.

You’re right. There are record levels of dry powder.

Don’t be fooled though. In reality it’s wet.

Venture investors will prioritise this to existing portfolio companies, and the inflated valuations already reported to LPs.

High profile implosions like FTX backed by the most trusted names in venture will exacerbate the severity of JOMO.

More of these will occur in the coming months.

delian @zebulgar

Its impossible to write comedies with this good of a script SBF pitches the sequoia partnership Vision? "Buy a banana with fake internet money" Blows the partnership away. Wow. During the partner meeting ? PLAY LEAGUE OF LEGENDS This is god-tier comedy

For many the primary fundraising tactics of the 2014-2021 FOMO market were theatricality and… deception.

Powerful agents to the uninitiated.

But we now live in darker times. Many of the current OG venture investors were born in the dark. They were molded by it.

The question is can you adapt to the darkness?

Here are 10 key changes to make to maximise your chance of success in a JOMO market:

1. The 1 month raise is dead. Look to build relationships over an extended period of time (6 months+). Build investor trust gradually through what you do, rather than what you say.

2. Cursory due diligence bases on 💫vibes💫 is over. Get ahead of the 8-ball. Create an extensive Data Room (even before your raise starts). Update it regularly. Here’s a great Data Room guide from Justine Moore from a16z.

3. Non-existent boards and finance functions are very 2021. Good governance will no longer be optional (particularly after looming LP lawsuits against some negligent VCs). Appoint an internal finance head. Hold regular board meetings. Ensure uncomfortable questions are asked.

4. Do not let valuation be a sticking point. You can achieve this either by removing valuation from the discussion (eg raising through a SAFE or ASA structure). Or use the most recent publicly available valuation data to benchmark and justify.

   AngelList
   have a real-time valuation tool here.

5. Projecting a quick 3x up-round will no longer be swallowed by investors. Investors want to see a path to profitability. Ensure you have a scenario prepared with no future reliance on venture capital. This scenario should be backed by a detailed plan.

6. Big-name lead investors alone are no longer enough to close rounds. Every reputable VC has been recently burned. Use results and metrics to get investors over the line rather than listing other investors in the round.

7. Infrequent and inconsistent shareholder updates are no longer acceptable. Your most likely funding source now are your existing shareholders. Treat them with respect. Write regular (monthly), detailed (long form) and consistent (-ly reported metrics) updates.

8. Alternative funding sources are no longer a nice-to-have. Start speaking with alternative funding providers to get a debt facility or grant in place along with your funding round and extend runway. Here’s a list of non-dilutive funding sources.

   Founder Toolkit 🧰 - Non-Dilutive Funding

9. Setting artificially short deadlines for making an investment decision will be met with a no. Ask investors for the own decision-making timeline. Follow-up thoughtfully with business updates rather than chasing for a decision.

10. Zoom to doom. Do not fundraise exclusively over Zoom. Meet investors in person. Build stronger relationships. It’s easier for an investor to say no to someone they haven’t met.

🛠️ Tools

1. Learn How to Angel Invest - with James McClure. James worked in senior executive positions at Google, AirBnB and Seat Geek - I’ve invested alongside him as an Angel. This is a great place for busy executives to start learning Angel Investing.

2. CEO Coach Curriculum - Matt Mochary has been CEO coach to the Founders of AngelList, OpenAI, Notion, Robinhood, Coinbase, Reddit, Plaid and partners at Sequoia, YC, Benchmark. Here’s his entire curriculum and templates open sourced.

3. How to fire people with grace, work through fear and nurture innovation - a great podcast from

   Lenny's Newsletter
   .

4. Surviving and Thriving in Tech’s New Winter -

   Mike Solana
   is one of my favourite writers - an entertaining and informative read.

5. How to Build An Angel Syndicate Part 1 - from

   The Odin Times
   - good summary of how to build and syndicate (and why you should).

6. Changing Times - brilliant piece about the year ahead from

   Elad Blog
   .

7. Mostly experts: Marketplace Metrics -

   CJ Gustafson
   goes over some of the best metrics for measuring marketplaces in this post.

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That’s it for this week. Have a great week and happy to hear any feedback or suggestions for next week. Onwards.