How to survive a bear attack

The tactics aspiring founders need to win - despite the current climate.
Matt Clifford
1 June, 2022

It’s no secret that Venture Capital has entered a bear market. Things have changed; public market tech stocks are down 50-80%. That impacts the price that late stage investors are willing to pay, which eventually filters down to Series A and sometimes to Seed too. 

Most VCs will slow their investment pace and raise their bar. In short, it’s not going to be a lot of fun out there. 

But that doesn’t mean that the strongest aspiring founders should be deterred from starting up. 

The long term bull case for tech hasn’t changed. It’s hard to imagine that technology won’t be an even more important part of every aspect of life ten years from now. What we’re seeing is a loss of faith in tech valuations, not a loss of faith in tech companies.

Most importantly, one of my fundamental learnings from the last decade, working with hundreds of companies to raise investment, is that the best companies can always raise. The money is there – it’s now just going to be harder to get it.

A few weeks ago, I visited San Francisco with some of the strongest teams co-founded in EF’s recent cohorts. What I witnessed were hugely resilient and productive co-founding partnerships, building the products they uniquely had a right to win in, gearing up to pitch businesses with market fit. 

What I didn’t see was any freakout from early stage investors. They still want to meet with great founders and deals are still getting done. There is no reason any aspiring founder should think their dreams have been dashed. It just means that the bar to reach them is a bit higher.

It’s not time to panic or to put your entrepreneurial plans on hold. It’s time to ensure you’ve got the strongest foundation possible, to ensure you clear the new bar.

Here’s what I recommend pre-seed founders should focus on to build globally important companies – despite the market:

1. Find the best possible co-founder for you

One of our core beliefs at Entrepreneur First is that you should have a co-founder. The world’s best investors consistently tell us that the number one thing they’re looking for in an early stage company is quality of the team. 

You need a co-founder with a complementary skillset, who is as all-in on your company as you, and who shares your level of ambition. The right pairing isn’t just additive; they’re multiplicative.

In our experience, most people don’t have such a person in their existing network. Friends and colleagues may not have the time or commitment levels you do, they may have too much overlap with your skillset, or you might just think that they don’t have what it takes. The most important thing is: don’t settle! The wrong co-founder is often worse than none. 

That’s why at EF, we source world-class talent from all walks of life, all of whom have quit their jobs and are ready to find their co-founder. Not only that, we give you the opportunity to stress test these partnerships in a real, working scenario and make sure they work for you. If that interests you, find out more here.

2. Find founder-idea fit

When you’ve found someone you want to co-found with, you should make sure you’re building something where you have a combined “right to win”. For any idea whose time has come, there will be lots of competition – so why will you win? If you don’t have a compelling answer to that question, you’ll struggle to raise money.

When you’re testing relationships and ideas with potential co-founders, you should be in pursuit of what we call ‘founder-idea fit’. This is usually found at the intersection of your skillsets: if each member of a team of two is individually in the top 2% of people in a particular field, and those fields are somewhat independent, your team will be in the top 0.04% of people working on a problem that combines them! 

In this market, you should be ruthless. You might be building something the world needs, but if you can’t show that the two of you are going to be better at building this than anyone else, prospective investors are likely to be happy to sit back and wait. If you can’t move at an extraordinary pace together to find an idea where you can be the best, you probably need to re-think the partnership and go back to step one.

If you can, investors are not going to want to miss out.

Even with a great team and idea, in today’s market you may have to accept a valuation lower than you might have a year ago. This can be frustrating (I’ve been there myself over the years!).

But it’s far more important to raise at all, and get yourself the runway you need, than to dig your heels. “Cash is king” is a cliché because it’s true, and if survival means a lower valuation, do the right thing for the company in the long run.

3. Speak to other founders

One thing I’ve learned over the last decade is that founder willpower is the ultimate resource. As long as you’re still determined to keep going, it’s very hard for the market to kill you. But willpower isn’t a single player game. We’re all in this market together. Some days will feel tough, but the support of others going through the same thing will be invaluable. Speak to your peers, find out what they’re doing, get their take, even take time to bemoan the injustice of the universe together! 

In my conversations with alumni, I’ve been impressed how well and decisively the Entrepreneur First community are responding to the market. They’re focused on the long run – building great solutions to important problems and doing what it takes to ensure their companies are here to reap the benefits.

I’m extremely bullish on this generation of startup founders. It seems like the easiest bet in the world to say that technology and technology companies are only going to be more important ten years from now. And many of those companies are going to be started right now. It’ll be the ones with the strongest foundations, the most talented and ambitious founders, and the courage to take the tough decisions that will win.

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