Stonks x Forum Ventures Present: The State of Pre-seed & Seed Valuations
With this report, we aim to arm founders and funders with real-time information on how market conditions will affect their fundraising so that they can realize successful pre-seed and seed rounds.
Market conditions like these remind us why the expression “May you live in interesting times” is construed as more of a curse than a blessing. In light of interesting—said euphemistically, of course—macroscopic conditions, geopolitical turmoil, trouble in the metaverse, and a myriad of other maelstroms, it’s no fun to be an early-stage funder or founder right now.
That said, hard data has a way of dispelling flimsy sentiment. Contrary to Twitter’s screeching masses, deals are getting done and funds are being funded. More, trouble often begets tremendous opportunity. After all, per a previous Stonks writeup:
Though perhaps initially counterintuitive, some of the strongest performing companies of our generation — Uber, Lyft, Airbnb, Pinterest, Snowflake, Slack, Square, Cloudera, Yammer, and many more — emerged and received funding during [the 2007-2009] downturn.
Looking at company formation data, the creation of these eventual winners spans a lengthy timeline. More, it is distributed almost equally before, during, and after the crisis. This supports the notion that good companies materialize through all sorts of financial climates: good, bad, and downright ugly.
Though companies founded during recessions have a much harder time raising capital, they do benefit from three key advantages:
1) A Focus on Financial and Operational Discipline
2) Less Competition
3) Easier Talent Acquisition
With that, take heart fellow founders and funders as even the darkest clouds have silver linings. What’s more: with economic clouds come rains that nourish the fortunes sown in bear markets and reaped in bull ones.
Per Marc Andreessen, IT’S STILL TIME TO BUILD!
📉 58% of respondents believe seed valuations will go down in Q1 2023. 38% believe they will stay the same. only 4% believe valuations will go up. VCs might be taking meetings, but the DD process will be slower and more deliberate.
💰 Traction and valuation seemed to be highly correlated, indicating that companies who can prove product-market fit, revenue generation, and customer acquisition will be more likely to secure funding.
🧕 🙎♀️ The current market landscape seems to be disproportionately affecting underrepresented minorities, with only 25% of respondents having at least half of their founders that are minorities.