Mayfield’s Arvind Gupta discusses fundraising for startups in a downturn – TechCrunch

Between his roles As co-lead of the Mayfield Fund’s Technical Biology practice and founder of IndieBio, Arvind Gupta reviewed about 470 startup submissions last year.

He calls his process “simple,” but that’s a bit of a reductionist: after reviewing a presentation and scheduling a meeting with the founders, he’ll spend many hours getting to grips with the underlying technology and members of the team.

“For seed offerings, I spend a maximum of 10 days to be able to give a founder a response and make it a promise,” he said last week during a TechCrunch+ Twitter space. “In 10 days, I can do the primary research and work with the founders to come to a conclusion there. For a larger Series A check. It might take a little longer than that, but not that much. »

I interviewed Gupta last month to learn more about the opportunities he pursues and to get his advice for new founders, but last week’s space was an opportunity to dig deeper. When I suggested that the public markets slowdown might give startups a chance to focus on finding product-market fit instead of chasing growth, he gave me a personal market correction:

Recessions or downturns are always the toughest times to build businesses, always, for entrepreneurs, for VCs, for everyone involved. Because nobody cares if the market is terrible. It’s not like you get a “forget it, no matter how terrible the feedback” purchase.

Our conversation unearthed a lot of helpful tips on fundraising in a bear market, why he thinks it’s still a good time to start, and how founders can avoid waving a big red flag that discourages many investors:

“Just like [some] VCs are arrogant, I think it’s important to have a learning mindset for entrepreneurs. Gupta said. “Entrepreneurs who think they know it all had better be right, because it’s going to be hard to learn on the fly if you already know it all.”

This transcript has been edited for space and clarity.

TechCrunch: The slowdown in public markets is impacting seed valuations, but seed funding still looks pretty steady. Is it still the right time to get started?

Arvind Gupta: I think it does, especially in what I do, which is reversing climate change and curing disease. It’s always a good time to start, because these things can’t wait.

What’s happened with the stock market is that valuations have gone down, multiples have compressed… Let’s say revenue is $100 million and if the value of a company’s IPO is $2 billion, that’s 10 times the sales. This has dropped significantly, about 30% from what it was before. Private markets are not re-priced every day, so it takes some time for this to catch up.

Late-stage investing has certainly dried up a bit… It’s only a matter of time before that trickles down, but there’s a lot of money in the system right now. Most big VCs raise huge seed funds, there are microfunds everywhere, and the angels are extremely active. There is a lot of optimism that technology can still create real solutions that can drive real value creation. So I haven’t really seen any slowdown, in the seed, pre-seed, or A-series areas.

The seed stage persists even during economic downturns, as people always seem willing to make small bets. What is your sense as to why this is?

When you invest huge buckets of money, usually you are not investing in a story, a hope and a dream, you are investing in a successful business. Now, there are very capital-intensive businesses where you need a lot of money before that traction is generated, and it gets harder to fund in a downturn.

You can still fund hopes and dreams, but just with smaller dollars, and you’re usually going to give up your business a bit more in terms of dilution. Arvind Gupta

You can still fund hopes and dreams, but just with smaller dollars, and you’re usually going to give up your business a bit more in terms of dilution during an economic downturn, so I expect that to start happening also in the next year.

Who will have more difficulty in this new environment?

I’ve always said that the low interest rate environment we’ve had since 2008 has generated interest-free lending to risky startups.

So when you start to think, “oh, this is going to cost $150 million before we generate our first dollar in revenue,” that’s going to generate a deep breath in the meeting. Once that $150 million is in, tell me what’s next – it’s going to take more creative business models, different go-to-market strategies that generate revenue along the way. For good entrepreneurs, there is always a way, right? It’s just different in different economic environments, it’s never closed, so to speak.

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You asked me some categories? I think climate investing, which I do, is still extremely dynamic. And there seems to be very little hesitation from investors to question business models or downstream investments, I think for other industries, you know, with SaaS and things like that, these are traditional businesses, where you have the revenue, you have the metrics, there are multiples, it’s almost like an equation that people plug in: “Okay, that’s what this business is worth.”

I think it depends on where the world goes next year: if the world stays a bit like this and goes sideways, everything will be fine. And there will be plenty of money for everyone.

What kind of market conditions should we be looking for to precede a rebound in late-stage startup funding?

What’s going to happen is that as the IPO market reopens a lot of these IPOs that are underwater right now are starting to go back to the original IPO price and the LPs that write their portfolio start to see their portfolio go up, that the allocation for venture capital continues to grow, and then venture capital continues to deploy and redeploy the money that comes in.

The output value is what drives all of this. So seeing the tech sector and the NASDAQ begin to rebound near its former highs, or even within 20% of its former highs, will be the precipitating factor for the market to stay open and money flowing.


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