PitchBook is reporting that the average early stage company has only 6-9 months of runway left. That is a danger zone in this new funding environment. As always, action now, backed by data and clarity of thought, will produce significant results. The difference in the current environment is that inaction will also produce significant results, just not the ones you are looking for.
When funding was plentiful, it was accepted that you could go out and raise 12-15 months of funding, which would give you 9-12 months to hit your milestones and still have 3 months for the new funding to appear at the higher valuation. That was a great strategy for limiting dilution and leveraging success, but in this funding environment we believe it is an avoidable train wreck. The ratio of supply and demand in the early-stage market has completely reversed from 2021. PitchBook estimates that in 1Q21, for each $1.00 you were looking to raise, there was almost $2.00 looking to invest. In 1Q23, that estimate dropped from $2.00 to only $0.65 per $1.00 of capital needed. For late-stage ventures, it declined to $0.34.
If you think you can wait out the market, that is an excellent strategy. But a word of caution: in our experience, funding environments grow slowly and shrink quickly. So, please plan for a longer wait than you might be thinking. Work hard to develop creative and aggressive strategies for building revenues, raising capital, and maintaining or cutting expenses. It’s hard to do while putting out fires and dragging your company forward yard-by-yard, but if you make this the hardest working summer you have ever had, we think you won’t regret it.
As always, we are here to help. Schedule a call with a consultant, not a salesperson, here.