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2023’s New Rules for Funding

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Since the funding bonanza of 2021 and early 2022, venture funding rounds have slowed considerably. According to CB Insights State of Venture Q3’22, funding is down 34% quarter-over-quarter and 58% from its high in Q4’21. Given this environment, what do you need to consider if you’re planning a fresh raise in 2023?

 

First, I don’t think we’ll return to multiple 200M+ rounds every day. VCs are conducting more due diligence and want to see a clear path to profitability before writing a check. This makes it easier to get media coverage in many ways – there will be less competition for digital ink. That said, a funding announcement still must be optimized to capitalize on the newsworthiness of the financial event.

It's a best practice to start working on the funding announcement plan with your PR team two months in advance of the announcement. This gives the team ample time to develop a robust FAQ, media list and great press release. Storytelling is still a crucial part of a successful funding campaign. No reporter wants to hear the same story they’ve heard one million times. You should be ready to talk about why you’re taking funding in this environment, your differentiators and how you plan to use the money.

Here's my absolute biggest piece of advice: Do not file your S-1 until you’re ready to announce the round. This must be clear between leadership, lawyers and marketing. The SEC’s EDGAR database makes S-1’s searchable and can lead to unplanned disclosure (and ruin your perfectly curated embargo).

Reporters are a skeptical bunch by nature. Their profession is based on asking questions, and recent company collapses and outright fraud have heightened those instincts. Be prepared for more intense questioning. I’d also err on the side of disclosure when it comes to metrics. Reporters are going to ask if any of the financing is debt or being used to buy out early investors. I’ve worked with enough founders to know disclosure can be scary. However, there’s very little downside to disclosing this information. If you’re on the path to IPO, it’s all going to come out eventually, so you might as well get used to it now. In the long run, you’ll build better relationships with reporters by being forthright.

The other elephant in the 2023 funding room is hiring plans. It was practically a given that big funding rounds came with a big increase in headcount. Due to changing consumer habits and the layoffs rattling tech, I’d talk less about hiring goals. The local business journal is still going to ask how many people you plan to hire in the region, but don’t get bit by making promises or chasing arbitrary benchmarks. Those hiring promises will be referenced if you ever have to conduct a layoff.

 

If you’re one of the lucky ones announcing a VC round in 2023, the landscape has changed. Be sure you’re prepared. While the coverage may come slightly easier, there are still plenty of other stories sucking up the air in the room. (I’m looking at you Twitter and FTX.) Our team handles funding all the time, so we have the expertise to make your round a success. We’re here to help and answer any questions you have as the landscape continues to shift. 

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