Based on data from the 250 surveyed founders for our DocSend Startup Index: The COVID Impact report, we found that during this economic downturn, 40% of fundraising startups are accelerating their product release timeline due to increased product demand, while the number is only 33% for non-fundraising startups. Below, we feature a few key metrics on product readiness from the report and our Q&A interview with Tim Guleri of Sierra Ventures.
The Active VC List keeps growing
The list updates live with additions from our fundraising community. Since last week, 7 new firms were added to the list, for a total of 332, including Frontier Ventures, Jackson Square Ventures, and Yamaha Motor Ventures.
Q&A with Tim Guleri, Managing Director, Sierra Ventures
Tim Guleri is a Managing Director at Sierra Ventures, a Silicon Valley-based fund that invests early – primarily Seed and Series A – and looks for proven product market fit, disruption in the market, and strong IP. Here’s what Tim thinks about product readiness in a pitch deck, early-stage fundraising in this climate, and more. This interview has been shortened for length and the full version will be on our blog.
Our research found that early stage investors seem to prefer investing in companies that at least have a beta product. What level of product readiness do you look for in a deck and what can a founder do if they haven’t yet achieved it?
For Seed level investments, our focus is primarily on the entrepreneur(s) and the product-market fit for the solution, so we need to see evidence of a viable product roadmap and a beta is a great way to validate the solution, but if the beta is not finished, we look to their work with design partners and potential customers for data points. To this effort, we can bring the considerable network of the 60 plus CXOs from the Sierra Ventures CXO Advisory Board, that can be great validators of these early products.
Another interesting finding was that only 9% of the companies fundraising had 12 months or more of runway. Do you have any advice for founders who are currently raising on short runways?
There is no question that the current situation surprised everybody. As an early stage investor, we don’t like to overfund companies (which can lead to bad business behavior) and good founders want to balance the amount raised with dilution. Our target for early stage companies is to raise funds to provide 18 – 24 months of runway. Many companies that may have been in the middle of that model in March have seen months of runway erode as growth projections come to a screaming halt. All founders we are advising have tightened expenses, taken across the board pay cuts, and have taken a moderate outlook to 2021, unless things improve. I think the good news is that short runways are the new normal, and investors are becoming sensitive to this environment, but, conversely, until there is more certainty in the recovery, we feel that valuations will be more measured.
When looking at pitch decks during the current economic environment is there anything specific you want to see?
While projections are important, we are especially interested in the various scenarios that the founder sees for the economy and how they plan to manage in a “best case” and “worst case”. There is no right answer for projections as we don’t have certainty on the future, but the thought process is critical for us. Additionally, presenting a “penicillin” value proposition (as opposed to a “vitamin” value proposition) is critical, and we look for customer-driven insights and no-brainer value propositions in these uncertain times. Companies that have “Product- Led Growth” as evidence of efficient go-to-market are the ones that catch our attention. It is my opinion that COVID will force that muscle to get developed for the best companies, which will grow even faster, post the COVID era.
It’s also important to note that as early stage investors, we are very focused on the founder(s), and it is incredibly hard to build a relationship online when we otherwise would have had multiple in-person meetings both formal and informal (ie. over dinner). If a founder can address ways we can get comfortable – for example, providing customer or industry/investor references and sharing their network with us, it helps us bridge this gap and build additional data points.
Is there anything you think founders should be thinking about right now or anything you want to add?
There is no question that the way we do business is going to change forever, and the founders that adapt the most and the fastest are going to win. We look forward to offering our help and assistance in this new journey.
While most investors are looking for a clear product-market fit, that may look different to a lot of founders. The traction you had pre-pandemic might not be valuable to an investor looking to write a check today. As many founders move to address current times, you may want to rethink how you position your product in your pitch deck.
Focus on an MVP, not just a great PowerPoint
Our analysis reveals a shift in the level of readiness required by institutional investors to receive pre-seed funding. Read more on TechCrunch now.
Product-User Fit Comes Before Product-Market Fit
The honest version of “we’ve got product-market fit on a small cohort of very early power users” is “we’ve got product-user fit.”