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| By Chris Graebe |
We’re halfway through the first month of a brand-new year, with so much hope for what lies ahead.
And honestly, one of the things I’m most excited about this year is all that we have in store for startup investors.
Before I unpack exactly what I see coming around the corner in 2023, I want to share one of the biggest things I’m laser-focused on this year in the startup space. That’s because it provides what I see as a golden opportunity for startup investors.
Let me start by pointing out that winter isn’t coming ... it’s here! I’m not talking about the freezing temperatures most of our country experienced around Christmas. I’m talking about the …
Venture Capital Winter
As I type this, there are shockwaves being felt by startups across our nation. What I mean by that is over the past few years, there has been an extremely full pipeline of capital for founders and startups.
If you had an idea and access to a venture capital or private equity firm, you could more than likely secure some sort of funding. Even angel investors with high net worths were quick to cut checks for the next budding entrepreneur or innovative idea.
But this has all changed! Hence, the aforementioned VC winter. This doesn’t mean that there isn’t any money available — in fact, there is more cash on the sidelines than ever before — but it just means VCs are cutting checks in a very different and selective way.
You see, when the economy is in a downward trend or slowed down by all the current factors at play in our market and economy, VC and private-equity firms stop cutting checks to hopeful startups that likely won’t make it; instead, they look for surefire opportunities at a discount.
This means that they want to find startups that have great IP or patents and need capital infusion. Sometimes, they may even acquire the entire startup or purchase a controlling stake. This gives them the ability to insert their own management team and take a more direct role in the future of the company.
I actually had a representative from a multi-million-dollar VC firm reach out to me a few days ago and unpack this as the very plan for their firm.
So, now that you have glimpsed into what the VC and big-money players are doing, you’re probably wondering …
What This Means for Startup Investors
The best way to explain what I think is going to happen is to go back to March 2020, which is a date we will forever remember.
That’s when the world changed with the grim news that COVID-19 had become a pandemic. In an instant, stock markets around the world took a nosedive and panic was rampant.
I witnessed the same fear-driven events taking place in the startup and equity crowdfunding space. Startups that had term sheets from VCs and PE firms had them thrown in the trash. The money that was guaranteed or even verbally committed just disappeared.
Overnight, the founders who had a set road map and game plan to leverage committed investments were forced to change course and pivot 180 degrees to find a new way to fund their vision.
This was a time when companies that maybe didn’t see equity crowdfunding as an option suddenly became very open to the idea of letting the crowd lead their investment round.
At that time, startups could only raise a total of $1.07 million, which really isn’t a whole lot. Plus, the equity crowdfunding vehicle, which was used as a fundraising mechanism, was only just over three years old.
This naturally made founders nervous if it was a viable option. But since March 2020, quite a bit has changed in the space we call equity crowdfunding.
Startups can now raise $5 million. There have been tons of startups that have seen the success of raising through the crowd, and it’s no longer seen as a long shot or a risk to raise from the crowd. In fact, it’s beginning to be the fundraising vehicle of choice for many founders.
This trend, coupled with the VC winter, could push startups that would have naturally gone to Silicon Valley to look at other options. This is the exciting opportunity I mentioned at the beginning …
You now have the chance to see companies that have extremely high upside and potential opening their doors to you, the retail investor, instead of going over to those large VC firms.
Of course, I’m doing my best to read the tea leaves and keep my ear to the ground. It will all play out, and I’m sure there will be surprises along the way. But I can say I’m extremely hopeful that this VC winter will open even more exciting opportunities for retail investors in 2023.
With that said, I can tell you that I’m already getting phone calls and reviewing several deals. Some of them look very promising. Of course, I will keep you in the loop along the way.
Happy Hunting,
Chris Graebe
Editor, Deal Hunters Alliance
P.S. For the past few months, I’ve been contributing a startup column to my colleague Tony Sagami’s trading service, Disruptors & Dominators. Members are currently enjoying gains of 43.2%, 40% and 35%. Consider joining them by clicking here.
