How should founders approach venture funding and valuations in 2023, California flooding, and more
Stretch Four Volume 48
Happy Sunday,
This week, I made the executive decision to move the weekly newsletter to Sundays it was easier and gave me more time to gather insightful content to share.
This is the first issue of the year so I am excited to get back to weekly newsletters and I wanted to do a bit of an update:
Cadence — I will stick to weekly newsletters on Sundays
Essays and long four pieces — I will write longer-form essays every two weeks
Interviews — I will be interviewing interesting people with a focus on performance, lifestyle, and parenting. If you are up for talking about how you stay on top of things like your sleep, fitness, and life. Here is a link to the first one.
From a content and topical side, I have listened to some of you who have given me great feedback. I will focus on the weekly editions sharing my learnings in these four areas each week The research-driven essays and interviews will also tie in these topics.
My mission is to be a higher-performing entrepreneur, a “good” father, and learn as much as possible. I will share things I find interesting across the areas:
Health and Wellness — Lots of performance hacks, fitness content, and lifestyle hacks are used by the best performers.
The technology founder and venture capital relationship — My day-to-day job consists of building a venture-backed technology company into a lasting empire — which takes time and money. The money comes from customers and mostly from venture capitalists and that relationship is one that is developing in real time. I’ll share my thoughts and content that resonates with me.
Family and my fatherhood journey — Things changed for me personally last year as I became a first-time dad. This was something you can never prepare for and 10 months into the journey I am learning a lot about myself as well as being a parent — I will share the learnings and insights I am gathering along the way.
Basketball dynasties and team building — As some of you may know, I spent the first 22 years of my life playing competitive basketball through college. While I am a long way from competing at a high level on the court I still have an obsession with how the best teams, programs, and franchises operate. I think team building is very correlative to what I do on day-to-day so I will focus specifically on how dynasties are built as it pertains to players, coaches, ownership, and strategy.
As always, I would love your feedback especially if you are new please email me at matt@stretchfour.co. If you are not interested in hearing from me, I don’t take it personally but please unsubscribe so you do not receive any future newsletters.
Let’s dive in.
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Quote of the Week:
“When you can’t stay motivated stay consistent.” - Jim Jones
Chart of the Week:
Tweet of the Week:
This week, Keith Rabois tweeted an exert from Fred Wilson’s AVC blog that picked up some steam. I wanted to give my two cents as it relates to building startups in 2023 and raising money. While I agree that round valuations have taken a massive drop I do not wholeheartedly agree with the desperation founders will have this year to fundraise. Smart founders were getting their businesses in order to get to profitability last year. With the number of venture dollars that were invested at high valuations in 2021, I think it was more than enough for a lot of companies to get to a profitable place or near it. I talk to a lot of other founders, and there are two types, right? Those will need to clamor back to venture funds this year, but the majority are those that are prideful that they have 48, 60, or even 72 months of runway in the bank.
Key takeaway:
If you are growing and profitable or close too it there is no foreseeable reason for you to raise more money and more indirectly find an exit for your investors in the short or near term. This can hurt investors because with no more paper returns for up rounds there are now a class of companies that are have no urgency to raise more money or exit in the foreseeable future.
Fred Wilson 2023 Outlook
As mentioned above, Fred Wilson made a 2023 outlook and predictions post and VC Twitter drank the cool aid. While there were parts that resonated it does seem like he is a bit out of touch with his predictions that Web3 will somehow return to prominence this year.
With the recent scandal taking place at Gemini and NFT platform OpenSea reportedly down nearly 100% in volume it is hard to see it coming back.
As mentioned above valuations will go down, but so much capital was raised in 2021 — if founders got savvy last year it will be interesting to see what happens.
I spoke with a now two-time founder friend whose first company raised a $45m Series B in 2021 and they are still well positioned with $30 million still in the bank and burning a $250k a month on $5M ARR. There could be hundreds if not thousands of startups in that position after the sky-high valuations and rounds raised in the record year of 2021. If you have 120 months of runway in the bank and the founders were able to take secondary — I am not sure those companies will be in a rush to raise new cash especially if their growth is modest.
Insight’s New Fund & VC’s Worsening Diversity Problem
As venture capital slows down there is a segment of founders who are left in the worst spot. The above excerpt is from a study produced by The Information — and shows that funding for black-founded companies just raised $2 billion less than they did in 2021. As a black founder myself — raising venture funding in the last part of 2022 was nearly impossible. Personally, I did not even waste my time having conversations. In 2023, there will be a massive influx of startups that will need to raise more venture funding — I think we will learn a lot in these first three months.
Biggest takeaway:
I have always been one to steer clear of the diversity function as it pertains to raising money. You can get be put into a box quick in the venture capital circles. I have also stayed down in San Francisco — the emerging markets for technology founders will get hit harder in 2023. Miami, Atlanta, and other regions do not have the infrastructure needed to create options for founders to raise legitimate funding.
Final Thoughts
That is all for this edition of the Stretch Four Insights Newsletter this week.
Make sure to check out a new essay from this channel every two weeks.
This week my wife and I have something focused on the first 10 months of the parenting journey here in San Francisco. Look out for it here on this feed.
If you are looking to connect outside of this newsletter check for me on Twitter and look out for the Stretch Four Youtube channel coming in the next few weeks.
Back to the trenches.
Best, Matt