Convertible Note Fundraising, Fintech Failure, How to Mark the Market – TechCrunch

Everyone loves an underdog, which is why investors and tech journalists love to discuss startups like Airbnb, Uber, WhatsApp, Mailchimp, Square, and Venmo that started during the Great Recession of 2008.

Your pre-seed, pre-revenue startup can similarly defy gravity, but in July 2022, it will be difficult to find many investors willing to bet on a company with no traction.

If your company is too early to be valued, convertible notes can be a viable way to secure early financing. Essentially short-term debt converted to equity, these notes can be useful for companies nearing their destination.

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Julie Gionfrido, director of advisory services at Fiondella, Milone & Lazzaracina LLP, has written an overview of TC+, including the pros and cons of fundraising with flexible notes and some strategies for getting started.

Raising early stage funding this way has clear advantages: For example, “they typically don’t come with control or board seats.

However, notes can also pose risks, such as setting valuation ceilings too low, not raising enough capital, or other poor planning that could give investors more equity than they intended.

Bottom line: If your company is on the cusp of opportunity, convertible note financing may be the way forward, but only if you have the right valuation and a plan to get there.

Thanks so much for reading TC+ this week!

Walter Thompson
Editorial Manager, TechCrunch+
@your main actor

Once a key driver of global venture activity, fintech investment is declining worldwide

Compared to Q1 2022, fintech funding fell 33 percent last quarter to $20.4 billion with 1,225 deals, according to CB Insights and Pitchbook. Year-over-year, fintech startups received 46% less funding than in Q2 2021, but the sector still received 20% of VC dollars.

To seek insight into the slowdown, Mary Ann Azevedo, Natasha Mascarnhas, and Alex Wilhelm look at U.S. and global activity: What lies ahead for layoffs, transaction costs, and consolidation?

“It’s no surprise that fintech is playing such a big role in the venture boom now behind us,” they wrote. “What’s really going on there?”

VC fundraising isn’t necessarily good news for first-time fund managers.

In the first six months of 2021, PitchBook reports that US-based venture capital firms raised $74.1 billion. This amount has risen to $121.5 billion in H1 2022, but with many investors waiting on the sidelines, where is that money going?

Reporter Rebecca Skutak looked at the numbers and found that megafunds were responsible for most of the increase. “Nearly two-thirds of venture capital was raised by just 30 funds,” she said, “a sign that VCs are growing their wealth before a long downturn.”

Mark the market to reach a realistic valuation and improve your fundraising opportunities

If your startup has less than 12 months of runway left, here’s more sobering news: Before you can raise more money, you may need to lower your expectations.

Ben Boisevin, founder of Ascento Capital, shared with TC+ a mark-to-market overview that can help founders reset their expectations as they approach their next round or move toward an acquisition.

“Valuations are ultimately determined by supply and demand in the M&A market,” he wrote.

“The higher you expect your startup’s valuation to go, the less likely the deal will go through.”

As fundraising becomes more difficult, founders need to ask investors for a flat round

There are worse things a founder can do than accept a low estimate, like lay off every employee before selling used office furniture on Craigslist. And that would be worse.

Investors understand that entrepreneurs are overwhelmed by macroeconomic events, but like cash, their patience and empathy are limited resources. That’s why Matt Cohen, founder and managing partner of Ripple Ventures, says founders should start asking for flat or low funding now.

“Instead of delaying this conversation, I strongly encourage startups in this situation to approach their investors now and wait for their Series A2 round,” Cohen says.

“To see this dynamic, it is better to go to the pit once and find what you want.”

You may need more than one deck.

A presentation floor is perfect for a live or in-person presentation, but as Song says, founders don’t always have the opportunity to be in the room where it happens.

With that in mind, Haje Jan Camps shared his personal best practices for creating decks that can be used for multiple opportunities.

• The teaser floor.
• The sender’s deck.
• Presentation board.
• Aft deck.