Sifted - Investor relations going sour?

Good morning there,

Wow, founders are going through a really tough time right now. That was my first thought after reading the results of our new survey on the state of founder-VC relationships. 

We first polled founders to see how their investor relationships were going amid the downturn about a year ago. At the time, over half said they were getting worse. Unfortunately, our new survey shows things haven’t gotten any better. 

Today, I dig into the latest data on how founders are getting along with their VCs, and what investors need to know about what their startups need from them right now. Read on for that.

Elsewhere today, we take a look at the Zurich-based startup being sued by computer giant IBM, the legal clause more VCs are trying to put into funding documents and a deep dive into Opus, an exclusive founders’ club backed by British royalty. 

– Anne Sraders, senior reporter

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Investor relations going sour?

The current downturn is causing founders and VCs alike a lot of stress. And — unsurprisingly —  it’s affecting founders’ relationships with their investors.

According to the results of a Sifted survey published today, 71% of startup leaders think relations with investors have worsened in the past year. Survey responses were from 96 founders and senior startup leaders of primarily early-stage companies, with nearly 44% saying relationships with their VCs have gotten worse in the last 12 months. Meanwhile, 27% said they had gotten much worse. That’s a deterioration from last year when Sifted polled 49 founders and senior startup leaders and found that over half of them felt their relationship with investors was getting worse. 

Perhaps more damning: when asked how helpful VCs had been with things like go-to-market strategy, customer contacts and marketing on a scale of one (least helpful) to five (very helpful), nearly 44% rated them a one. 

The poor state of relationships is understandable. Although some VCs are optimistic and say dealflow is picking up, many companies are struggling to raise additional funding and founders remain under pressure to make their companies profitable. 

“There's still a lot of BS around how we should aim to be global leaders, move fast, talk to customers, listen to a million fractional snake oil salesmen — but at the same time, cut costs, run lean, focus on niches,” one respondent wrote. “It's like you've been reading a book about going on a new adventure with a band of heroes, which is suddenly ending in a Dostoyevsky-styled survival novel that reflects on sanity.” 

Other respondents described VCs as “totally inconsistent and lacking on responsibility”. 

The survey’s findings didn’t entirely hate on investors: 29% of founders said their relationships with investors had improved over the past 12 months; and 24% said their investors had had a positive impact on their mental health.

But I think a key finding from our survey was how these relationship tensions have also been weighing on founder mental health: 76% of respondents said their investors have negatively impacted their mental health over the past 12 months. This isn’t a topic being discussed much, either, with nearly 87% of respondents saying that the issue of founder mental health had never been discussed in board meetings. 

Given a large proportion of our respondents (69%) have pre-seed or seed-stage companies, and 80% had startups of 50 people or less, this appears one big oversight. After all — as investors like to tell us more than anyone — early-stage companies are all about the people. Why not put their wellbeing on the agenda?  

Reading these responses, it’s clear founders are going through a rough time — reiterating the findings of another recent Sifted survey which found that 49% of founders are considering calling it quits this year. I’d love to hear from you, founders: do these survey results surprise you? How are you feeling about your VC relationships? And, VCs, what do you think reading this? In what ways do you think investors can be more supportive of their startups? I’d love to hear from you.

– Anne Sraders, senior reporter

🧑‍⚖️ US computer giant IBM is taking Zurich-based startup LzLabs to court today, alleging that it made “unlawful use” of parts of its technology.

• LzLabs helps its clients migrate from IBM computer mainframe technology onto open source alternatives. The US tech giant says it’s “inconceivable” that LzLabs — and its UK subsidiary Winsopia — could have developed that migration software without illegally reverse engineering IBM’s technology. LzLabs denies that their tools were developed unlawfully.

🇬🇧 UK cybersecurity scaleup Darktrace has been taken private again in a £4.3bn deal — three years after listing on the London Stock Exchange. US private equity firm Thoma Bravo has agreed to a deal to buy Darktrace for more than twice as much as it floated at in April 2021.

Get your startup ready for the spotlight

We’re seeking startups in central Europe showcasing exceptional growth to feature on our Leaderboard — a ranking of the region's fastest-growing startups. Want to gain unparalleled exposure and credibility for your startup?

👑 Inside Opus: the exclusive founders’ club backed by British royalty. In Dubai last week, a group of tech founders and family office representatives met with the who's who of the city for the launch of Opus in the UAE: an exclusive members’ club for “ambitious business builders and entrepreneurs” founded in London. 

• Opus’s claim to fame is that Princess Beatrice, ninth in line to the British throne and the King’s niece, is a board member. 

🇸🇪 Swedish digital therapeutics startup Joint Academy lost its biggest paying customer and was faced with the imminent threat of bankruptcy 18 months ago. With the help of its investors — and a €16m convertible note — it’s turned things around. In the last year, it’s opened seven physical clinics in Sweden and is expanding to the US and the UK. Mimi Billing finds out how it reversed its fortunes. 

🧐 Meet the “portfolio sale clause”: a tactic VCs are employing more to get liquidity. 

• A small but growing number of investors are adding a “portfolio sale clause” to funding round documents. This enables VCs to sell their shares in startups — without giving other investors the right to sell their shares at the same time. It would only apply if the VCs were to liquidate their whole portfolio, not just the individual stake in that one company.
• While its use is on the rise, it’s not very common just yet — although lawyers think it’ll become more popular.

👀 The 67 early-stage HR tech startups to watch.

🏴󠁧󠁢󠁳󠁣󠁴󠁿 Inside the Scottish tech ecosystem. (Sponsored by EIE) 

📈Inside Manchester, the UK's fastest-growing fintech sector. (Sponsored by MIDAS)

📈 On May 15, contributing editor Éanna Kelly will bring together a panel of experts from Twilio and ANNA Money to chat about the evolving startup landscape and how data could be the key driver when scaling businesses old and new. RSVP. 

🇦🇹 On June 3, join Sifted at the ViennaUp Startup Festival for an exclusive networking event to connect with the 100 fastest-growing startups on the Sifted 100: Central Europe Leaderboard. Limited space available. RSVP. 

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