A Funding Winter: Back to the Fundamentals of Business

Robin's thoughts on startup fundraising over the next one to two years In 2020–2021, the pandemic kept consumers at home. Demand for remote work and video conferencing, remote education, and telemedicine drove a surge in sales of computers, communications devices, and consumer electronics. Governments' quantitative easing and stimulus programs also fueled a capital-market boom. Startup financing and investment performed impressively over the past few years. The Russia–Ukraine war that began in early 2022 continues today. The easy-money environment of the past ten years has also intensified inflation around the world. Major European countries and the United States are struggling with inflation, prompting monetary tightening and sharp rate increases. Consumer spending has been squeezed, while spending over the past two years has shifted from electronics toward offline travel, dining, and leisure. Global technology stocks have plunged: Meta and Netflix by over 70%; AMD, NVIDIA, and Intel by over 60%; Tesla, Amazon, and Google by over 40%; even Apple and Microsoft by 20% and 30%, respectively. More startups, such as Zoom and C3.ai, have fallen as much as 90%. The global economy and capital markets have been hit hard, and early-stage VC cannot remain unaffected. Well-known VC firm Sequoia Capital and the world's largest accelerator, Y Combinator, have warned of a funding winter. Startups must respond cautiously to the coming capital contraction and its effects. Entrepreneurship must return to the fundamentals of business: are customers willing to pay for the company's products and services, rather than the company merely hoping VCs will pay? The era of burning cash to buy market share has passed. Entrepreneurs must use limited resources more carefully, operating with greater focus, discipline, leanness, and efficiency, and reducing organizational size appropriately if necessary to weather the next one to two years of funding winter. In VC, we look further ahead. We ask whether each investment can create long-term value, solve major current or future problems, and bring profound impact and change. We assess investments over five to seven years. Although we are not entirely driven by the capital market's enormous swings over two to three years, large write-downs in portfolio companies still create operating pressure. Falling markets therefore affect VC investment judgments, and we may adjust valuations with portfolio companies when necessary. After all, technology giants have already undergone significant corrections; early-stage investments must adjust somewhat too.