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#35 — How are Startups reacting to the increased time between venture rounds? Ft. Peter Walker, Carta

#35 — How are Startups reacting to the increased time between venture rounds? Ft. Peter Walker, Carta

Practical insights on managing longer funding cycles.

Welcome, SaaS Thrivers!

Today, we explore how startups cope with longer gaps between venture rounds. Joining us is Peter Walker from Carta, a leading voice in startup equity and data storytelling.

Listen now on Apple, Spotify, Castbox, Google and YouTube.

Key takeaways:

How Startups are Reacting to the Increased Time Between Venture Rounds

  • Surge in VC Subscriptions: Following our blog post on "Are VCs incentivizing Startups to Grow-At-All-Costs?", there was a significant increase in VC subscriptions to ThriveStack’s substack. This interest underscores the relevance of the topic in the current startup ecosystem.

  • Peter’s Analysis: Peter Walker from Carta shares the factors contributing to the rising trend of startup shutdowns. He discusses how startups that grew during the era of low interest rates are struggling to adapt to the new, high-interest-rate environment.

  • Predictions for 2024: Peter predicts that 2024 will see an increase in startup shutdowns. Despite the availability of capital, many startups may not be able to pivot quickly enough to survive in the changing financial landscape.

What is Carta Seeing as the Typical Time Between Investment Rounds?

  • Startups are now experiencing longer waits between Seed to Series-A and Series-A to Series-B rounds.

  • This extension in timelines is largely due to a decrease in the number of funding rounds available, compelling startups to stretch their existing capital further and adjust their growth strategies accordingly.

  • Peter Walker emphasizes that the current average time to secure subsequent funding has increased beyond the traditional 18-24 months, impacting how startups plan their financial and operational activities.

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Strategies to Mitigate the Lengthened Time Between Rounds

Startups are adopting various strategies to navigate the extended periods between venture rounds:

  • Layoffs and Restructuring Compensation: Many startups are reducing their workforce to cut costs and streamline operations.

  • Disciplined Hiring: There’s a shift towards hiring individual contributors over managers to maximize efficiency and reduce overhead.

  • Cost Management: Startups are scrutinizing software and infrastructure expenses to minimize unnecessary spending.

  • Bridge Funding and Extensions: Utilizing bridge rounds and extensions to secure interim funding.

  • Revenue Funding: Emphasizing revenue generation to achieve self-sufficiency and reduce dependency on external funding.

Departmental Hiring and Compensation Trends

Carta’s State of Compensation report highlights significant trends in the startup ecosystem:

  • Layoffs have impacted all departments, with customer success being particularly hard hit.

  • However, new hiring is showing a recovery, especially in engineering and sales roles, which now constitute a large portion of new hires.

  • There is a noticeable shift towards hiring individual contributors over managerial positions.

  • Additionally, equity packages for new hires have reduced significantly, reflecting a tighter equity distribution strategy.

This disciplined approach aims to balance growth with financial sustainability.

Advice for Founders and Growth Professionals

Peter offers actionable insights for early-stage founders and growth professionals:

  • Patience and Strategic Hiring

    “Patience is crucial in these times. Focus on strategic hiring to ensure sustainable growth.”

  • Understanding SAFEs

    “Get familiar with SAFEs (Simple Agreements for Future Equity) to avoid unanticipated equity dilution.”

  • Leveraging AI Tools

    “Adopt AI tools to enhance operational efficiency and stay competitive.”

Key Timestamps

  • (00:00) Introduction

  • (01:05) Surge in VC Subscriptions

  • (02:20) Peter’s Analysis on Startup Shutdowns

  • (03:40) Predictions for Startup Shutdowns in 2024

  • (05:00) Typical Time Between Investment Rounds

  • (06:15) Impact of Reduced Venture Rounds

  • (07:35) Layoffs and Restructuring Compensation

  • (08:50) Disciplined Hiring Practices

  • (09:55) Cost Management Strategies

  • (11:10) Bridge Funding and Extensions

  • (12:20) Revenue Funding Strategies

  • (13:30) Insights from State of Compensation Report

  • (14:45) Trends in Layoffs and New Hiring

  • (15:50) Changes in Equity Packages

  • (17:05) Advice for Founders and Growth Professionals

  • (18:15) Importance of Patience and Strategic Hiring

  • (19:25) Understanding SAFEs and Equity Dilution

  • (20:40) Leveraging AI Tools for Operational Efficiency

  • (21:50) Closing Remarks and Final Thoughts

Where to Find the Guest:

LinkedIn: Peter Walker

Where to Find the Host:

LinkedIn: Gururaj Pandurangi