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Venture capitalists don’t care who they invest in as long as it generates the return that LPs want. In reality, founders who don’t follow the pattern have had to work harder to convert their pitches into deals. According to the signs, the founders of 2024 will need to really up their game if they want to change the odds.
Venture capital investment reached new lows by 2023, with the deal count dropping for a third straight year. Deal values fall to lowest levels In four years, Q4/2023. Since NVCA began tracking the metric in 2000, the market has never been so skewed. This leaves little room for entrepreneurs to make mistakes.
It is especially true of founders who don’t fit the model, be it due to their gender, race or age, or for any other reason.
According to the report, teams made up of all women and those with minorities book fewer meetings than teams that are all men or all majorities. DocSend‘s research into VC engagements with founders. Justin Izzo, DocSend’s Lead Data and Trends analyst, told me in a recent conversation that gains made by historically underrepresented founders have been mostly erased, with female-only teams booking 50% fewer meetings.
DocSend research doesn’t end there. In 2023, VCs reviewed pitch decks 19% less than they had done a year earlier at the preseed stage. When working with diverse teams, VCs are more attentive to the team composition, product, and market size. It’s not surprising that VCs tighten up their reviews, as each dollar is more expensive. The topics they spend time on are telling.
It is not the fault of VCs to be susceptible to prejudices like recency, stereotype threat and pattern matching. These are all biases we suffer from. We all rely on familiarity to make decisions in complex and risky situations.
There are some distinct disadvantages of falling back to past patterns. As Justin Izzo noted, “Some excellent ideas may fall through the cracks. When the fundraising sector becomes less diverse, it could be a bad sign for the quality of ideas available in the market..”
The fact is, great founders and great ideas come in all shapes and sizes. Many VCs acknowledge this, and some have even set up funds to support underrepresented founders such as a16z. Talent x Opportunity Fund. The funds that have DEI mandates represent 1.87% AUM, with earlier and smaller rounds. Diversity VC researchThe ball will remain on the side of court that was founded.
If non-pattern matching founders want to succeed on a level playing field, they will need to up their game. The following actionable insights from our discussions with VCs can help them to do that.
Persistence pays off and so does resilience
The founders can take many steps to improve their odds, starting with just being persistent.
Even AirBnB founders have to persevere in a world that is constantly changing. Many rejections Before getting your first VC, it is important to bounce back after rejection. It is especially important for founders that don’t match the pattern, who may need to visit more offices than other entrepreneurs.
Arlan Hamilton, of Backstage Capital offers a lot of proof that resilience and dedication can be powerful. She has overcome homelessness and built her own VC company that now invests in over 200 companies. Her Story This is irrefutable proof of the power of persistence in pursuing a good idea.
The People Who Are Getting You
Finding VCs with similar backgrounds and experiences is a powerful way to leverage persistence. As Justin Izzo noted, “Non-pattern matching founders must prioritize finding people that ‘get’ them and allow weak links to turn into bigger opportunities..”
Finding an empathic ear isn’t the key to building a network of people who understand non-pattern matching founders and their unique challenges. Find people who understand you by focusing on allies, mentoring, and relationships that will ultimately lead to investment opportunities. Pattern-breaking VC outfits such as Kapor Capital, Harlem Capital You can also find out more about the following: Backstage Capital Initiatives like TxO It’s important to be proactive in identifying potential investors and to keep an open mind about diversity. This will help you land the meeting that can change your life.
Measure Traction With Metrics
Metrics are a universal way to communicate with people who don’t fully understand your experience or community.
It is important for non-pattern matching founders to master this language, as it will help them validate their business models and level the playing field. The expertise of VCs like Maximilian Fleitmann To even out the playing field, non-pattern matching founders need to focus their efforts on getting financial metrics correct as soon as possible.
“By 2024, the focus will be on the fundamental economics behind building a company. A business will only succeed in the long term if it makes money. VCs are looking for more detail on how to get to profitability.Maximilian continued. No wonder DocSend is so popular Research The study shows that VCs spend 48% more time and 25% less on the business model and traction section in 2023 compared to a year earlier.
In 2024, the ability to confidently and accurately represent concepts like top-line revenue growth, annual recurring revenues, customer acquisition costs and churn, as well as headcounts and profit forecasts, will be common among successful pitching.
Create A Team that Compensates for Weaknesses
For founders who do not follow a pattern, it is important to build a team of strong individuals that can complement the strengths and weaknesses of the founder.
Jeff Erickson is an angel investor and director of strategic partnerships at Forecasts“Investors are unlikely to fund an individual entrepreneur. What they prefer to see instead is founders who can build and manage a team which creates something bigger than the sum of its parts..”
This means that non-pattern matching founders should be strategic in selecting advisors and co-founders to bring what they are lacking, whether it is industry expertise, technical skills or business acumen. It also includes choosing people who have the youthful enthusiasm, passion, wisdom, or knowledge of the past. For non-pattern matching founders, it is important to have teammates with a native understanding of metrics and numbers.
Don’t forget that VC Checks Are Not Everything
All of the VCs that contributed to this article, on record and background, agreed with one thing: VC funding doesn’t mean everything.
Iynna Halilou, partner at The MBA Fund” Not all worthwhile businesses are VC-backed. “It is sometimes more important to create a $10M company that directly benefits you and your local community than to try to build an enterprise that generates $100M with a small percentage of ownership.Iyanna continued.
Maximilian Fleitmann expressed similar opinions, noting “Raising a round does not signify success. You should only do it when necessary to achieve your goals.It’s the right time, if any other day, to consider whether VC funding is really beneficial to your company. The VC phenomenon is unique in that it confers financial resources and social recognition.
Some founders may consider that the most important accomplishment is to independently create the patterns others will recognize.