As many regions around the world enter an adjustment period, startup founders and investors have to adjust to a slower fundraising pace. Still, some investors see the adjustment as a healthy thing since it produces more reasonable valuations, weeds out unproductive firms, and forces founders to focus on creating real value.
Three veteran investors — Oscar Ramos, General Partner at SOSV and Managing Director at Orbit Startups; Bernard Moon, Co-founder and Partner of Sparklabs; and Jeff Chien, Senior Vice President of Plug and Play — shared their thoughts on how companies can navigate this period, and discussed some of the developing trends at a panel discussion that took place on Sept. 22 at the Beyond Expo 2022 tech conference, held online at BEYOND Metaverse.
The text below has been condensed and edited for clarity。
Oscar Ramos, General Partner at SOSV and Managing Director at Orbit Startups
It’s no secret that fundraising has not been easy during the last month. If I had to describe the situation regarding fundraising for startups right now, I’d say the word is slow. For Orbit Startups, we work very closely with many of our portfolio companies across the globe. The common pattern that we’ve seen is that the decision-making process for any investment is taking longer. Every investor is scrutinizing all the decisions even more.
And right now, I think a lot of investors are trying to analyze how real it is what the company has, how repeatable and scalable is revenue, how dependent are they going to be on capital, how far is their own break-even point in terms of investment, and if they reduce the pace of investment-driven growth, can the company still be sustainable?
One thing companies need to consider is: Am I a nice to have, or am I a must-have for my customers? And if you are a must-have type of service, how do you compare with the existing alternatives?
A developing trend that we’re more excited about is we see technology as a force for improving the quality of life in emerging markets. Some of the goals that society has are to be able to reach a level of stability and wellbeing – those solutions that are very efficient in terms of cost, very effective in terms of solutions, and sometimes very simple to be inclusive, and require a low barrier of entry in terms of knowledge or technological literacy. So those solutions are eventually going to be able to make a jump and become solutions that are also going to be quite relevant and reasonably competitive in more developed economies.
We already see that with some of the companies. So I think that trend is an emerging trend where we see new hubs of innovation that will take shape in the future…And we’re very excited about that. We’re looking forward to bringing in more innovation from the rest of the world.
Bernard Moon, Co-founder and Partner of Sparklabs
For investors, and for entrepreneurs to see this cycle, realize it’s not always about the highest valuation. It’s really about executing with what you have and also hitting your next benchmarks and goals.
I think [the adjustment period] weeds out certain types of entrepreneurs that might have been just going for a quick money grab. I think it also filters out any bad actors in certain spaces like crypto. So I think it’s a good thing for the overall ecosystem to go through this period of adjustment, and for first-time entrepreneurs to sort of see the cycle.
I would advise the startup founders to just be persistent. I think in this environment it just takes probably twice as many asks and pitches. A year or so ago, maybe it took 50 meetings or 50 to 100 pitches, maybe it’ll take 200 now. So I think just be persistent. But also, get the basic things right, know the investors that you’re targeting, and what they’re really looking for. And whether that firm has adjusted its strategy.
In terms of general developing trends, we are seeing more innovation on the enterprise software side, especially in even top OECD nations. Besides the US, UK, and certain markets, I think that’s developing further in Asia, whether it’s China, Korea, or Japan, and also continuing in sort of second-tier OECD nations. Crypto infrastructure, I think that’s going to grow, that’s a space we’re watching.
Also, just overall healthcare innovations. I think that’s going to continue. It was a trend in Covid but I think that it is just further accelerated, whether it’s on the biotech side or even just in terms of software and other innovations.
Jeff Chien, Senior Vice President of Plug and Play
I think one thing that we’ve been seeing is the domestication of products. Especially with some of the heightened political instability, we’ve seen a lot of growth in that. Plug and Play, we work with other Fortune 500 companies in terms of innovation, introducing startups to them. And we’ve been noticing that they’ve been requesting this type of startup from us.
For example, in China, after they purchase the equipment, they’re now looking for something that’s domestic in terms of the software that operates it, as opposed to just looking for the best available technology. So in that area, we’ve been seeing some trends. Cybersecurity, we’re starting to see a bit of a comeback in that area as people started to pay more attention to that. Carbon neutrality has always been a solid area to invest in. So these are some of the areas where we’ve seen some growth.
Another developing trend we’re also seeing right now is that three years ago when you find something really good in the States, we would say, ‘can I potentially bring that to China?’ and vice versa. Now the mindset has become, ‘well, I see a very good idea for an explosive startup over here in this part of the world. Can I do something similar in a different part of the world?’ So that’s what we’ve been very intrigued to see.
Startups take a lot of pride just saying that ‘I’m this version of that in this particular part of the world,’ knowing that there’s actually a higher barrier since Covid because of some of the political environments. So I think that has also been a developing trend. I think that we will probably continue this for the next two, four, or even six years.