Securing funding from venture capital investors has always been a competitive game, but the current economic climate has made the hunt for VC funding even more challenging. According to recent data, a total of $27.1 billion was invested during Q2 2022, the lowest total since Q1 2021. Valuations have declined from their 2021 highs, and leading venture capital firms like Sequoia Capital and Y Combinator have warned founders of a serious market downturn.
In the current climate, attracting investors is about more than a sleek pitch deck. According to venture capitalist Krista Moatz, investors want to work with startups who have more to offer than only an idea.
“We see a lot of companies that are just too early,” Moatz says. “They have a deck and a vision, but they haven’t started building yet. It’s just not something that we would be able to invest in right then.”
Moatz is a founder and managing Partner at Sugar Capital, an early-stage venture capital fund. She also co-founded POPSUGAR, a women’s lifestyle digital media brand that was acquired by Group Nine Media in 2019. On September 14, 2022, she’ll be hosting pitch practice and office hours events for Founders Network members where she’ll provide insights to help startup founders navigate new VC funding realities.
The first institutional investor to fund POPSUGAR was Sequoia Capital who invested $5 million in the startup in 2006. This investment ended up serving as POPSUGAR’s series A funding round before the startup went on to raise a total of $46 million in subsequent funding rounds. As an investor on the other side of the table today, Moatz says POPSUGAR’s trajectory differs from current trends.
“Our first round of financing was series A,” Moatz says. “We did have a little bit of angel funding, and the founders had also put in some funding. But there wasn’t this whole concept of, like, angel and then pre-seed and then seed and then series A. So that’s been sort of an interesting evolution that’s happening. It seems like companies are taking institutional capital earlier than we were back then, and there are actual seed funds now.”
Expand Your Scope
When deciding which startups to invest in, Moatz says Sugar Capital and other VC funding firms like hers are looking for founders who have a long term plan and a vision that extends beyond a single product.
“A lot of companies, especially on the software side, their vision is not big enough,” Moatz says. “They have one product, but then we’ll ask for the roadmap. What’s the roadmap and how big is this idea? So I’d encourage founders to think big. It’s okay to start off with a single product, but where do you go from there? What does your roadmap look like?”
Making an Impression
At Sugar Capital, Moatz and her partners invest in the entire e-commerce ecosystem. Part of their portfolio includes consumer brands, and the rest is made up of software solutions that are helping further the e-commerce industry.
“On the brand side, for us, what we really look for is a brand that is going to resonate with consumers in an organic way,” Moatz says. “So you should be spending a lot of time upfront on what your brand is going to be, who you’re going to be targeting, how you’re going to be targeting, what channels you’re going to go through, and sort of the ethos of your brand. If we can’t see the brand or the packaging or how it’s all going to look to consumers, then it’s hard for us to judge it based on just product alone. So for us to invest in a brand, the branding has to be set. Also, they need to be in the market for at least a month or so, so that we kind of see what the reaction is.
“On the software side, we’re very product focused. We need to be able to see an actual live demo of what the product is. So I think spending a lot of time on getting something–an MVP or even a beta product–out there before you try to go out and fundraise from funds like us is important.”
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