There’s been a lot of chatter about the 'funding winter’ coming upon us. Prima facie, it looks like it's already here.

But it is important to remember that markets are cyclical. If you are a founder you have to build an organisation that has to endure a multitude of these cycles over time.

Adaptability becomes an important factor in building these long-lasting organisations, let me talk a bit about what you need to adapt to right now. We operate in the early stages, pre-PMF to be specific so will only talk about companies in that stage.

Pre-PMF startups have to now change their fundraising strategy. Goalposts have moved closer. Last year one could’ve raised capital based on their story alone. With the current market conditions, I don’t think that would be possible for a while now.

As shown in the diagram below (from Tomasz Tunguz's write up which I highly recommend to everyone) as the capital availability in the market is reducing, the fundraising will rely more on metrics and numbers, or to be succinct, in your short term execution.

We're somewhere here.png

Interestingly, the capital availability has reduced to an extent, but I think venture capitalists globally had a more outsized response to the sudden change in winds after a massive bull run since the end of 2020. The performance of tech stocks over the past few months along with indications of a looming recession have made the outlook of the investors very cautious. I have marked where I think the investors are at this point in time.

The bottom line is, that you will most probably need to showcase a fair amount of traction to raise follow on capital.

Regardless of the investor sentiment, the goal of early-stage companies should remain hitting their PMF, although the timeline and the resources allocated for the same will reduce from the perspective of VCs.

In this regard, Tomasz also poses a fairly interesting question, will companies need to redefine PMF in 2022 or 2023?

I think the macroeconomic factors should not influence how companies define their PMF. It should remain a well thought out internal metric/number that that company is working towards.