The Breeze: Investing in Startups in 2023
How I'm balancing serving portfolio companies and pursuing new investments
The conventional wisdom among VCs is that 2023 will be exceedingly hard for startups. Check out Fred Wilson’s post What Will Happen in 2023 and Brad Feld’s What Just Happened for a preview of the whiplash ahead.
For startup investors, the reset requires a deliberate balance between helping portfolio companies get through tough times and focusing on pursuing new investments. Both take time, and time is a scarce resource. How should a thoughtful investor allocate it in 2023?
Some of my Jetstream Syndicate investments from 2020 and 2021 started raising Series A in the second half of 2022. My experience with them is that the goalposts have already moved. 2023 will probably be even tougher.
There’s an argument to let those companies suffer and accept if they fail. Instead of helping, focus 100% on making new investments. The thinking is that legendary companies start in down times, since it takes extra hustle to raise funds, close customers, and scale up when purses are tight. Airbnb and Uber, founded in 2008 and 2009, are frequently cited as examples. If an early-stage investor spends all of her time hunting down the top new companies starting in 2023, she could potentially put together an outperforming portfolio.
The counterpoint is that great companies aren’t actually concentrated in down years. Their founding years lie on a relatively evenly distributed spectrum. There’s a chart floating around the twittersphere showing this, but I don’t have it handy. The point is that great companies are founded every year.
Where do I land? I’m in the camp of helping portfolio companies survive and thrive with whatever I can offer. There’s a Mike Maples-ism that all great companies have at least one near-death experience. Perhaps the time has come for startups founded in the last few years. I’m definitely still looking for new startups, and I’ll stay on plan to deploy another ⅓ of Jetstream this year, but I expect to spend a good deal of time finding the path through the pins with my fund’s existing investments. Don’t tell me the odds.
So what am I doing? I’m working on three initiatives to increase survival odds: 1) coaching founders on how to run a seed or Series A process, 2) making intros early for founders to spend time casually with follow-on investors to build relationships ahead of fundraising, 3) establishing access to capital for follow-on investments.
On running tight fundraising processes, I’m getting more tactical on how I quarterback the process with founders. I already love helping with narrative design and investor intros. Now I’m adding more structure around it with timelines and templates. I’ll also refresh my existing seed and Series A investor networks and build new relationships.
On making investor intros early, as I’m putting more time into my investor network, I’ll connect founders with investors who I think would be a good fit earlier on so they can build trust over time.
On access to capital, I’m exploring opportunities for a mini “opportunity fund” to ensure that the best Jetstream-backed companies continue to get funded in this environment. Jetstream was designed to write first checks out of the fund and rely on SPVs for follow-ons. I expect the SPV market will tighten this year, so having closer relationships with sources of Series A capital to fill in the gaps feels wise.
If you’re an investor, how are you thinking about 2023 and your portfolio companies? If you’re a founder, what has been especially helpful from your investors?
Thanks Ian Rountree for the conversation that inspired this post.
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