What's 🔥 in Enterprise IT/VC #296

Refocusing on relationships vs. transactions, founders who are more 🥩 vs. sizzle 🥓 will rise back to the top

Jul 2

🙏🏼 Q2 is finally over. And yes it was quite ugly.

Since this data usually lags a few months, here is my expectation for what Q3 will look like - yes, vaporized like a Thanos snap of the fingers.

Since I am 🥛 half full kind of person, here’s the silver lining. Let’s call the last 2 years an aberration or a COVID blip and prior to that while the pace of rounds closing were increasing quickly, founders and investors still had time to be more relational vs. transactional in their approach to fundraising. Relationships have always mattered but that was forgotten during the last 24 months when preemptive round was stacked on top of preemptive round. During turbulent times, a founder’s prior choice of investor is magnified when strategic decisions on burn and value creation are being made. The good news is that due to the slowdown and lack of FOMO, investors and founders are back to basics with more time for relationship building during diligence.

What this also means is that those founders who are more 🥩 than 🥓 sizzle will rise to the top again. 🥩 founders are those who are maniacally focused and obsessed about solving a customer pain by building a differentiated product and focused on the basics. They tend to undersell versus oversell. They are the ones who know what the definition of customer is, a paying customer. They can walk you through the customer journey in detail and explain how their product is used by each and every of the first handful of customers and what the deal sizes are. They talk about TAM after first nailing the initial, microscopic wedge of customer pain and talk about the expansion opportunities but don’t lead with it.

Ed Sim @edsim

Founders, nuances matter, especially in this environment. Some founders use the word "customer" interchangeably for prospect, design partner, pilot, paying customer. Just be clear in how you explain and for avoidance of doubt, customer = paying customer 💰

🥓Sizzle founders talk about TAM first, are amazing at telling a story but the product and customer obsession is not all there. They tend to oversell and exaggerate where the company is versus where it truly is. When you dive deeper into numbers and diligence and customer use cases, the answers become less clear.

During a massive bull market filled with FOMO, the founders who told amazing stories and sold the idea of huge TAMs were the ones who raised the most the quickest especially when credit was given way ahead of actual traction. In today’s funding environment which is more of a reversion to the mean, markets are back to rewarding true value. If you’re a founder and getting ready to fundraise, I’d wait until the Fall when the markets settle. I would spend the summer continuing to iterate on product, landing more customers, and preparing your story with meaningful proof points. Build a believable budget, set clear goals or milestones on what you expect to achieve with the capital, ensure you have a handful of customer references who have been prepped in advance, and create your list of key future hires. Let the results tell your story and you’ll have a fundraise based on 🥩.

As always, 🙏🏼 for reading and please share with you friends and colleagues. And for those celebrating, I hope you have a Happy 4th 🇺🇸 of July!

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I'm incredibly proud that Front raised its series D and wrote a few thoughts about it. Not the easiest environment to raise in, but great outcome. Thanks to everyone who's been part of the journey, and welcome @salesforce, @BatteryVentures & @jenntejada 🙂 front.com/blog/announcin…Scaling the human touch: Announcing our Series D!Front Co-founder and CEO Mathilde Collin announces our Series D funding, shares reflections on our journey to today, and previews what’s next for Front.front.com
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