As venture capital-backed startups mature, they face an ever-evolving set of challenges. In the current VC-constrained environment, attracting funding from investors requires more than having a bold vision on paper.
As Senior Managing Director for Teachers’ Venture Growth (TVG), Avid Larizadeh Duggan is an investor who understands how to build better businesses and what it takes to create tech companies that will thrive in the long-term.
Avid recently spoke to Sifted to share four essential steps for founders and entrepreneurs to consider before seeking additional capital:
1. Scrutinize your metrics
As VCs scale back their funding from the recent boom, they're more focused on companies that are clearly on the road to becoming cash flow positive. The crucial element: a sufficient amount of runway. TVG recommends that their partners start their fundraise at least 12-to-18 months before they likely could run out of cash.
2. A slight down round can be the right move
With the current squeeze on multiples, companies that negotiated a favorable valuation in a previous round are likely to find a much-less forgiving environment this time around. That calls for a realistic appraisal of what to expect.
Specifically, companies may have to accept a slight down round on the road to forging an enterprise with staying power. That means seeking help from their investors to, among other steps, reprice employee options in such a way that they can build the business for the long term.
3. Ensure you have a strong leadership team
While a visionary founder may attract funding in the beginning, at later stages investors typically need to see a leadership team with the expertise and experience needed to guide the company as it grows and matures. It's also an indication that the company is evolving appropriately from a fledgling enterprise to one with sustainable staying power.
Often moving people around within an organization or bringing in talent from the outside with different experience can make a significant positive difference. For instance, Taxfix, a software company that automates personal tax returns, brought in a new CEO in late 2021, Martin Ott, with experience scaling companies. Ott reshuffled several C-suite roles to position the company for growth, prior to partnering with TVG in 2022.
4. Look for long-term investors
TVG can draw on the strengths of the Ontario Teachers' Pension Plan, which is backed by C$242-billion in assets and a responsibility to pay pensions for decades to come. For that reason, TVG are committed for the long term. In addition to this, Ontario Teachers’ 30+ years of global investment experience provide insights that are crucial to success as its partners grow and navigate more complex challenges.