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January 16, 2024 | Tom Ballard

INVESTOR OUTLOOK 2 | What’s the state of start-up funding?

Most, particularly those in the early stages, are doing well as are those that are meeting milestones. Preserving cash is still advised.

Today’s question as posed to our experts is: “A lot has been written about the decline in available capital and the need for start-ups to preserve cash. How are the start-ups in your portfolio faring and what are you expecting on the capital front for 2024?”

Gene Bressler, Chairman of the Upper Cumberland Investment Alliance: In our fund just started, we do not have any investments currently funded.

Eric Dobson, Managing Partner, Community Equity Partners LLC and Sheltowee Venture Fund II: The big surprise of 2023 was we only invested 20 percent of new capital in new deals. Capital was scarce in the market after the first quarter of 2023, so our portfolio companies came back to us for capital, and we were able to support them. Our portfolio companies fared well in 2023. I think both trends will continue into 2024. We will continue to support our portfolio first but will look to take advantage of what I believe will be a strong buyer’s market in 2024.

Tony Lettich, Managing Director, The Angel Roundtable: Our Angel Roundtable portfolio companies are currently faring reasonably well. Several have recently completed fully funded rounds, with a couple even having an opportunity to expand their rounds due to strong investor interest. That said, we expect the funding market in 2024 to continue to be very tight in the early months of 2024. We do not expect to see the start-up markets to improve until valuations have demonstrated a consistent level of stabilization, which we are optimistic we will begin to see in the second half of the year.

Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital: Less money was raised by Venture Capitalists (VCs) for investing in 2023 than in 2022, and VC-backed companies raised less money from VCs in 2023 than in 2022, and valuations were lower in 2023 than in 2022.  Frankly, across the entire VC industry, 2023 was a truly brutal year from almost any perspective. Generally, the young companies in our portfolio have fared well. Typically, they have not needed to raise capital, or they have been able to raise equity at an acceptable valuation, or they have been able to access venture debt under acceptable terms. With that said, one of our portfolio companies died in 2023. It was painful, and I did not anticipate that outcome in 2021 or 2022. All of our remaining portfolio companies are healthy and performing well. With respect to capital availability and valuations in general, I expect 2024 may look more like 2023 than 2022.

Ken Woody, President and Partner, Innova Memphis: If a start-up is hitting its milestones and performing well, we don’t have any real challenges finding capital. For several of our companies who are thriving and looking to raise Series B funding, they have multiple term sheets and VCs competing to invest. On the flip side, if you’ve missed your milestones and need capital, it’s pretty brutal. I don’t see that changing for 2024. We have also seen VCs pull term sheets or commitments last minute, which is pretty challenging for Founders.

David Adair, Co-Founder and Managing Director, Solas BioVentures: We see our portfolio companies as well as others managing cash tightly. All of our companies have been asked to sharpen pencils and have contingency plans to extend their cash runway for as long as possible. Cream rises to the top; so, the best companies are receiving support. Companies that do not hit their milestones, are not efficient managers of cash or face significant regulatory hurdles will struggle to survive.

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