#104 VC Insights From Recent Reads: Burn Rates & Bear Markets

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Best VC Insights From Recent Reads

There’s a lot of great content from notable VCs, LPs, and CFOs/finance pros on the internet. Here, we’re focused on pulling out the insights out that really matter, as well as finding the most current content that overlays historical lessons with current market dynamics, which are changing faster than ever.

This week, we wanted to share the best of what we’re reading right now and how you can apply it to your VC fund, no matter what your role. Let us know what you think about the new format with a quick reply or comment!

During the good times, many companies were able to raise milestone letter-name rounds (Seed, Series A, or Series B) without the traditional levels of product-market fit that they needed in the past. Many companies increased burn rates and spending to be in line with what other companies that had raised that letter round were spending.

The problem is that a Series A company that has product-market fit, is generating revenue, and growing is very different from a company that raised a Series A or B on a narrative of future revenue and customer traction…

There is a longer and more articulate article about why venture capital was bloated and how every stage of the capital stack became frothy, but that has been written a thousand times. So that is not what I want to write. What I want to say, and the sentiment that I kept hearing last week was that: if investors make it to the other side of this bear market, they will be better capital allocators for the rest of their careers, so long as they internalize the emotions they’re feeling today.

There are two parts of that statement which are worth double clicking on.

  1. If investors make it to the other side of this bear market, they will be better capital allocators for the rest of their careers, so they as they internalize the emotions they’re feeling today. This is a conditional statement because there will be investors who do not make it to the other side of this bear market. This might happen for a variety of reasons…

Looking at Q3 2023 data, it is clear that the current economic conditions, from rising interest rates to battles against inflation, have impacted funding. The numbers show fewer funding rounds and a decline in total capital raised. 

But it is not all doom and gloom. Many funds have capital on hand; they are just more cautious and diligent about where they place it. There is a clear flock to quality – both in terms of startups and investors. 

In the following analysis of the venture landscape for Q3 2023, the data is collected from Crunchbase. The funding rounds only include U.S.-based investments and stages Pre-Seed through to Series C…

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