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To entrepreneurs in bear markets: Don't be picky about VCS and funding

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In a bull market, entrepreneurs can be choosy about added value from investors; In a bear market, money is added value.

Originally by Jason Choi

0x9F, BlockBeats

This post is a paraphrase from Blockcrunch podcast host Jason Choi on his personal social media platform, translated by BlockBeats:

In crypto, the relationship between VCS and founders has flipped 180 degrees.

While completed crypto funds are at historically high levels, fund managers have little intention of deploying them. Funds launched in the second and second quarters of 2022 typically have a deployment period of more than three years, and most crypto start-ups won't make it to that point without new funding. That gives VCS a lot of leverage.

In general, experienced tier 1 teams can still raise money, but valuations are down by half from a few months ago. There are bids because big vc funds compete for quality projects to stay active.

Second - and third-tier teams only receive non-lead checks from top VCS, or small checks from long-tail funds, proprietary trading firms, trading funds and the like. As VCS save money, non-lead checks have and will continue to decline. Proprietary trading firms/trading funds are not authorized to venture capital.

Those funds that have not suffered severe declines or liquidated mostly want to reduce the risk of illiquid risky investments. Teams that six months ago could finance an upfront product at a $60m-plus FDV (fully diluted valuation) now can't even reach a $20m valuation.

In a bull market, entrepreneurs can be choosy about added value from investors; In a bear market, money is added value.

Put too much emphasis on valuation and the business can be lost. Unless you have a one - to two-year cash life cycle, I highly recommend that founders raise an interim round or optimize their team. Many teams remain blindly confident that the bear market will soon pass. It's time for a reality check.

At the same time, I see predatory terms offered by many wild "VCS" (such as market makers with Side Pocket accounts). I saw an investment term sheet that said, if the KPIs are met, you can get money from investors for the next year, the valuation doesn't change, and there are no lock-ups.

Sky-high expectations of what VCS can add value will no longer exist."Added value" is mostly just a marketing gimmick and a cost center. The foundation maximizes signaling while minimizing actual delivery. This is the reality of the crypto venture industry.

Now, the relationship between VCS and founders is finally returning to normal equilibrium.

Remember,Vc's main role is to take risks, to pay salaries and fund risky start-ups, not to provide "value added" services. As far as I can tell, most of this is nonsense.

A few funds that are large enough to still have the capacity to provide real portfolio support over the next few years, but they tend to be too large to allocate resources to companies at an initial stage. Founders can find angel investors, but most of them are cutting back.

In a nutshell, advice to founders trying to raise money:

1. Don't try to over-optimize on price, just close the deal

2. Don't be fooled by predatory deal terms

3. If you try to find investors with a clear investment theme and experience in the early stages, they are good but rare

Good luck.