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The State of Fundraising in 2024

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2024 State of Fundraising

Predictions, Insights, and Guidance from Experts on Raising Growth Stage Capital in a Shifting Economic Environment

The private fundraising landscape for growth stage startups is ever-evolving, shaped by economic trends, geopolitical dynamics, and global uncertainties. In an annual New Year discussion with CFOs and CHROs in The Circle, industry experts shared valuable insights into the challenges and opportunities that companies face in the current capital raising environment.

Joining the conversation was Dr. Lindsey Piegza, Chief Economist at Stifel; Mike Bellin, Partner & Capital Raising Solution Leader at PwC; Sameer Dholakia, Partner at Bessemer Venture Partners; and Mike Jung, Partner & Co-Founder at Founders Circle Capital.

Here are the Takeaways from the conversation:

Uncertainty Looms, But a Technical Recession Remains Unlikely

In a recent poll of leaders in The Circle, 83% of respondents did not close a funding round in 2023. As we step into 2024, 25% said they are unsure about their fundraising plans, while only 22% are actively planning to raise capital.

Dr. Piegza kicked off the conversation with a macroeconomic view, highlighting the resilience of the U.S. economy despite geopolitical uncertainty and conflicts in Europe and the Middle East that have been complicating the economic outlook. Decent gains in the labor market and wages have been tempered as debt levels rise and savings wane, said Dr. Piegza. She pointed out that “higher borrowing costs will also compound the real burden of debt for businesses.”

“Corporate sensitivity to higher interest rates has very much been mitigated in this cycle. Taken together, given the challenges, barriers, ongoing and expected volatility, and uncertainty in the coming months, broad-based growth will expectedly weaken, but remain positive, and likely stop short of a technical recession. Consumers are still spending, businesses are still investing, but both show heightened signs of fatigue, losing momentum from peak levels. As we go into 2024, we expect an average annual growth rate of about 1.5% to 2%.” – Dr. Lindsey Piegza, Chief Economist @ Stifel  

Exit Activity Could Increase Mid-2024 with Small IPO Window

Mike Bellin from PwC shared insights into the fundraising environment, expressing cautious optimism for 2024. Despite slower activity over the last two years, a deep pipeline of public-ready companies and a potential window for IPOs instills hope for some exit activity. Specifically, Mike’s “crystal ball” points to an IPO window of late Q1 through Q3, but prior to the US presidential election, which is always a challenging time for companies to go out. 

M&A and Private Equity activity will likely increase as companies not meeting IPO criteria seek alternative options. As a result, more companies may consider consolidation, roll-ups, or strategic exits in 2024, especially amidst a significant public market backlog and the subsequent higher expectations for an IPO debut.

Investors Continue to Focus on Profitability and Long-Term Growth

Amidst a sluggish exit environment, our venture capital panelists agreed that most growth stage VCs are ready to invest given their significant dry powder, but they will still be extremely selective with new investments in 2024. Similar to 2023, VCs will continue to set their sights on strong efficiency metrics, top-line growth, and a company’s path to profitability as they evaluate investment opportunities. 

The Rule of 40 was referenced, underscoring the importance of meeting specific metrics to attract investor interest. Sameer Dholakia highlighted Bessemer’s Rule of X as an alternative to consider in the current macroenvironment. 

Sameer also spoke to the compression in revenue multiples, but made clear that companies with a solid business in a large market and a promising trajectory can seek funding with optimism. Mike Jung pointed to some promising trends that may increase VC investment pace: 

“Two major factors have led to a lot of VC firms really slowing their investment pace in the last twelve months: a gap in valuation expectations and the uncertainty of how a business is going to grow due to a meaningful slowdown in demand. So as companies grow into their valuations and technology spending begins to rebound, the momentum is starting to look a lot better than it did over the last two years.” – Mike Jung, Partner & Co-Founder @ Founders Circle Capital

Maintaining A Long-Term View Is Key

Our VC panelists stressed the importance of long-term planning and decision-making, urging companies to align their actions with their decade-long journey of building successful enterprises. 

As a former operator, Sameer underscored how the importance of making decisions that support long-term goals and avoid short-term fixes: 

“As CFOs and CHROs, you’ve got to be making calls for what the company needs to be able to do years out into the future. Don’t be shortsighted in your planning and in your investments right now, because you’re just going to be limiting yourself for what the business needs to do in a two or three year timeframe, when the market could look entirely different.” –Sameer Dholakia, Partner @ Bessemer Venture Partners

Beyond typical financial metrics, investors may scrutinize stability in the employee base as an indicator of company health, cited Mike Jung. For both CFOs and CHROs, thinking long-term and scaling a great culture were emphasized as vital components of enduring success.

IPO Readiness is a Solid Investment, Regardless of Your Exit Path 

In countless conversations with Circle members about their IPO journeys, the number one piece of guidance is always to start early. Regardless of their eventual exit path, growth stage companies have an opportunity to focus on elements of IPO Readiness that improve the fundamental maturity of their business and “provide real value to the organization, regardless of exit type” says Mike Bellin. 

Some specific focus areas mentioned by our experts were: 

  • Start building your IPO Roadmap early, focusing on the people, processes, and systems needed to scale into public life. 
  • Build a three-year projection of business growth based on adding the same amount of net new ARR, and understand the impact on growth rates.
  • Align employees with the company’s growth through new equity plans and remuneration structures.
  • Consider the technology and software needed to transition from a private to a public company.

“In conversations with our CXO clients, we’re exploring what ‘no regrets’ actions they can take today to mature their organization and get their company ready, whether that is for an M&A exit, a strategic buyer, an eventual IPO, or even staying private. Particularly, these actions end up focusing on systems, financial closing processes, and making sure that you are getting the right data points and information to the key decision makers in the business.” –Mike Bellin, Partner & Capital Raising Solution Leader @ PwC

Fundraising Considerations For Growth Stage CXOs 

Our experts concluded the conversation with some recommendations for CFOs and CHROs in growth stage companies as they navigate the current macroenvironment and build their fundraising strategies. 

Growth stage CFOs should consider: 

  1. Prioritizing high ROI investments for growth.
  2. Having early conversations with potential investors.  
  3. Leveraging technology, software, and AI to make financial processes more efficient and repeatable.
  4. Practicing the elevator pitch and frequently engaging with the investor ecosystem, well before you intend to raise a round. 

CHROs play a crucial role in leading the most strategic function in the business: focusing on people and culture. To support fundraising efforts, our panelists said that growth stage CHROs should consider: 

  1. Evaluating your talent acquisition and development strategies to ensure you have the right people in the right roles for future growth, or a roadmap to get them there. 
  2. Measuring and analyzing employee growth and churn rates to understand and improve company culture.
  3. Embedding culture systematically throughout the entire employee lifecycle, including onboarding, recruiting, performance reviews, and promotion processes.
  4. Partnering with their CFO to understand what people metrics may tell a strong story about the health of the company. 

The Takeaway:

The fundraising frontier in 2024 is dynamic and complex, requiring companies to navigate through uncertainties with strategic foresight. As cautious optimism emerges for potential exit activity in mid-2024 and a small IPO window, investor focus on efficiency, profitability, and long-term growth persists. Long-term planning, avoiding short-term fixes, and IPO readiness are important focus areas for growth stage companies navigating the challenges of fundraising in an uncertain economic environment. 

Apply to join The Circle to participate in conversations like this one within a private leadership community of CXOs.

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