👋🏾 Hi friends!

I’ve been busy melting in the heat, exploring some of the beautiful spots that Tuscany has to offer whilst keeping an eye on the doom and gloom cycle that a slow news cycle in venture over the summer tends to lend itself to.

In this weeks Off Balance, I’ll be chatting about whether VCs are wasting your time and money, how I suggested one founder think about the current funding environment, breaking down VC funding on a stage by stage basis as well as discussing what it is that VCs tend to look for when funding a business.

All of that will be followed by a look at what else has been happening in the world of tech and venture in this week’s Lowdown.

Also, don’t forget to check out this week’s guest on the pod - Maya Moufarek - who scaled Pharmacy2U by delivering an acquisition rate equivalent to opening a brick and mortar pharmacy every 2.5 days 🤯🤯 You can listen to the Primer episode here with the main episode out on Friday 25th August.

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Now let’s get into it.

Sitting on the Dock of the Bay, Wasting Time

The one article that has been shared more than just a little bit over the last week is this “provocative” take from the Financial Times’ Alphaville section.

It does a magnificent job of both being incredibly accurate whilst also being completely wrong.

It argues that VC requires an investment strategy that relies on moonshots and returns are driven by Power Law (Pareto Principle / 80:20 rule) - i.e. that a small number of successful businesses drive all of the returns.

And that as a result LPs allocating into VC funds are equally at risk of finding themselves being woefully outperformed by the S&P 500 (because obviously investing in stocks that just keep going up is a no brainer right?).

The point is that in over 20 years, many individual stocks have outperformed the median VC fund. The challenge is predicting which ones. Using factors like growth and momentum might enhance the chances of spotting these outperformers, but such methods aren't easily applied in private markets.

And not only that, if you are chasing “median” in venture, you’re doing it wrong.

At the end of the day, VC is an industry that is predicated on outliers, as with any asset class money can be made, and money can be lost - but ask yourself this, how many advancements

How can did I add value?

I am a member of a number of communities whether for VCs, angels, CFOs or founders (variously - bar one - all hats I have worn) and try to be as supportive as possible.

Recently, a founder in one such community reached out after having spoken to another founder who, despite being this being their third startup, was struggling to get straight yes / no responses from the VCs they had been speaking to, something they were not used to having raised in the “good ol’ days” of the last few years.

The founders question was: “How different is raising capital today versus the previousl 12 or 24 months”.

Whilst I have said it before, I responded with the following (as you know I love me a good list):

1. LPs are pulling back so VCs are having to too.

2. Lots of well funded startups yet to come back to market with tails between their legs having 'frittered' away lots of cash at high valuations.

3. I therefore expect some VCs to be preserving cash for special situations / recaps (ie promising businesses with bad cap tables).

4. Time frames are now 9 months to close a round rather than 6.

5. Need to show both growth as well as strong unit economics to raise from good funds.

6. Lots of companies should NOT be raising venture (previously they could though) and so no doubt that is also playing out.

7. Expect next 6 - 12 months to be painful.

8. If pre seed experiment quickly and with capital efficiency and get metrics for seed (a 50 person waitlist is not metrics for seed).

9. If post seed see point 5. SaaS should be growing at 33222 year on year as rule of thumb (more on this below).

10. Be pragmatic. Find solutions. Don't wait for funding. Valuations are not "coming back" in fact they have now RETURNED to where they should have been.

Simply put, in the past you could use other people’s money to run your experiments and you could find that money pretty easily. Today, for most of us to raise money, you need to be smart about where you spend your time, focus on what you can do without a tonne of capital behind you and show traction before going after any significant investment.