Mayfield’s Arvind Gupta discusses startup fundraising during a recession – TechCrunch

Between his roles As co-leader of the Mayfield Foundation’s engineering biology practice and founder at IndieBio, Arvind Gupta reviewed around 470 startup pitches last year.

He describes his process as “simple,” but that’s a bit of a letdown: after reviewing the manuscript and scheduling meetings with the founders, he’ll spend hours familiarizing himself with both the underlying technology and the individuals in the group.

“For seed deals, I take up to 10 days to be able to give the founder an answer, and I commit to that,” he said last week in a TechCrunch + Twitter Space. “In 10 days, I could do the main research and work with the founders to come to a conclusion there. For larger Line A checks. It might take a little longer than that, but not too much. “

I interviewed Gupta last month to learn more about the opportunities he’s looking for and get his advice for first-time founders, but last week’s Space was an opportunity to dig deeper. When I suggested that a mass-market downturn could create opportunities for startups to focus on finding the right product for the market rather than pursuing growth, he gave me a individual market adjustment:

Recession or recession is always the hardest time to build a business, for entrepreneurs, for VCs, for everyone involved. Because no one cares if the market is terrible or not. It’s not like you make a purchase: “forget it, we won’t mind that the returns are terrible.”

Our conversation uncovered a lot of helpful advice on fundraising during a bear market, why he believes now is still a good time to start, and how founders can avoid waving a big red flag that frustrates many investors:

“Like [some] VCs are arrogant, I think it’s important to have a learning mindset for entrepreneurs.” Gupta said. “Entrepreneurs believe they know everything better than being right, because it is difficult to learn quickly if you already know everything.”

This transcript has been edited for space and clarity.

TechCrunch: The mass-market downturn is affecting early-stage pricing, but seed-stage funding still looks pretty stable. Is this still a good time to start?

Arvind Gupta: I think it, especially in what I do, is fighting climate change and curing disease. It’s always a good time to start, because those things can’t wait.

What happened to the stock market is, as valuations go down, the multiples go down… So let’s say revenue is $100 million and if a company’s IPO value is $2 billion, then that revenue is 10 times. This number has decreased significantly, about 30% compared to before. Private markets don’t revalue every day, so it will take some time for that to catch up.

Late stage investment has certainly dried up quite a bit… It’s only a matter of time before it drops, but there’s plenty of cash in the system right now. Most of the big VCs raise huge seed funds, there are microfunds everywhere, and the angels are super active. A lot of people are optimistic that technology can still create real solutions that can drive real value creation. So I haven’t seen any real slowdown, either in the seed, pre-seed or Series A regions.

The true seed stage persists even during an economic downturn because people still seem willing to place small bets. What are your thoughts on why this is so?

When you invest large sums of money, in general, you are not investing in a story and hopes and dreams, you are investing in a business that is showing traction. Now, there are some extremely capital intensive businesses where you need a lot of money before that traction is built and that becomes more difficult to finance during a recession.

You can still finance hopes and dreams, but for smaller dollars, and in general, you’ll give up your company a little more in dilution terms. Arvind Gupta

You can still finance hopes and dreams, but for smaller dollars, and you’ll usually give up your company a little more dilution during an economic downturn. , so I expect that to start happening next year as well.

Who will have more difficulty in this new environment?

I’ve always said that the low-interest environment we’ve really had since 2008 has created a zero-interest loan for risky startups.

So when you start looking at, “oh, it’s going to be $150 million before we generate our first dollar of revenue,” that takes a deep breath in the meeting. Once you have $150 million, tell me about that next phase – that will require more innovative business models, different go-to-market strategies to generate revenue throughout. way. For good entrepreneurs, there’s always a way, right? It just differs in different economic environments, it never closes, so to speak.

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You ask me for some items? I think investing in climate, what I do, is still incredibly rapid. And there seem to be very few investors who are hesitant to question the business model or the downstream capital, I think for the other areas, you know, with SaaS and the like, that’s the businesses. In a traditional business, where you have revenue, you have metrics, there are multiples, it’s almost like an equation that people plug into: “Okay, here’s the value of this company.”

I think it depends on where the world goes next year: If the world stays like this and goes sideways, everything will be fine. And there will be a lot of money to spend.

What kind of market conditions should we be looking for that could lead to a recovery in late-stage startup capital?

What will happen is that, when the IPO market reopens, a lot of these underwater IPOs start to go back to their original IPO prices and the LPs are writing out their portfolios starting. The first time they saw their portfolio come back, the allocation to venture capital continued to grow, and then the venture capital continued to deploy and redeploy the proceeds.

The exit value is what drives it all. So seeing the tech sector and NASDAQ begin to recover near its old high, or even within 20% of its old high, that will be the factor driving the market. always open and money flows in.

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