between his roles As co-lead of the Mayfield Fund’s engineering biology practice and founder of Indibio, Arvind Gupta reviewed almost 470 startups last year.
He describes his process as “simple,” but that’s a bit short-sighted: after reviewing the deck and scheduling a meeting with the founders, he’ll spend a few hours getting to know both the underlying technology and the people in it. Team .
“For seed deals, I spend up to 10 days responding to the founder and making a promise to them,” he said last week on the gaming-updates + Twitter space. “In 10 days, I can do primary research and work with the founders to come to a conclusion. For a big Series A check. It might take a little longer, but not that much.”
I interviewed Gupta last month to find out about the opportunities he was looking for and get advice from the new founders, but last week’s space was an opportunity to dive deeper. When I suggested that a downturn in the public markets would give startups an opportunity to focus on finding product-to-market fit rather than chasing growth, he gave me a personal market correction:
A recession or recession is always the hardest time to start a business, always for entrepreneurs, for venture capitalists, for everyone involved. Because nobody cares if the market is terrible or not. It’s not like you’re making a deal: “Forget it, we don’t mind that the return is terrible.”
Our conversation provided a lot of great advice about raising money in a down market, why they think it’s still a good time to start, and how founders can stop waving the huge red flag that turns many investors off.
“Like [some] Venture capitalists are brash and I think it’s important for entrepreneurs to have a learning mindset. Gupta said. “Entrepreneurs who think they know everything better will be right, because once you already know everything, it becomes hard to learn right away.”
This transcript has been edited for convenience and clarity.
gaming-updates: The slowdown in the public markets is hurting early-stage valuations, but early-stage funding is still pretty stagnant. Is now a good time to start?
Arvind Gupta: I love it, 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 happened to the stock market is that as valuations fell, multiples narrowed… So let’s say revenue is $100 million and if a company’s IPO value is $2 billion, that’s 10 times turnover. It has dropped significantly from 30%. Revaluations in private markets do not happen every day, so it will take some time to catch on.
Investments have of course dried up a little lately… it was only a matter of time ago, but now there is a lot of money in the system. Most of the big VCs are raising big funds for startups, there are microphones everywhere, and business angels are extremely active. There is a lot of optimism that technology can still create real solutions that can help create real value. So I didn’t notice any gaps in seed, pre- or production regions.
The seed stage persists even during economic downturns as people are still willing to place small bets. What do you feel so far?
When you invest large sums of money, you are not usually investing in a story, a hope and a dream, but in a company that is showing success. Now there are some extremely capital-intensive companies that you need a lot of money to build that traction, and it’s getting harder to fund during a recession.
You can still finance hopes and dreams, but only with less money, and you tend to give up most of your business in terms of dilution. Arvind Gupta
You can still fund hopes and dreams, but only with less dollars, and you tend to give up a little more of your business in terms of dilution during an economic downturn, so I expect to see that next year as well. will happen.
Who will have a hard time in this new environment?
I’ve always said that the really low interest rates we’ve had since 2008 have provided interest free loans for risky startups.
So when you start to realize, “Oh, it’s going to be $150 million before we get to our first dollar of income,” you’ll take a deep breath in the meeting. When that $150 million comes in, tell me about the next step – that will require more creative business models, different go-to-market strategies that will generate revenue along the way. There is always a way out for good entrepreneurs, right? It’s just that in different economic conditions it is different, so to speak, it never closes.
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Did you ask me about some categories? I think the climate investments that I do are still very much alive. And investors are a little hesitant to question the business model or investment in recycling, I think for other industries, you know, with SaaS and things like that, it’s a traditional business where you have income. You have the numbers, you have the diversity, it’s almost like an equation that people fill in: “OK, here’s how much this company is worth.”
I think it depends on where the world goes next year: if the world stays like this and moves on, everything will be fine. And enough money to travel.
What market conditions should we expect before funding for late-stage startups resumes?
What will happen is that when the IPO market reopens, many of these IPOs that are now under water will go back to their original IPO price, and LPs that start writing off their portfolios will get a jump in their portfolio, that’s the venture. the allocation of capital keeps going up, and then the money going into venture capital keeps being allocated and rebalanced.
The output value is what drives it all. So if we see the tech sector and the NASDAQ starting to recover near their old highs or even within 20% of their old highs, this is a good time to keep the market open and keep the money flowing.