Summer is coming to an end. My kids are finally back to school this morning and I am ready to spend more time looking into early stage deals. 2023 has been a tough year for early stage investing. A good number of my existing portfolio companies are struggling and a couple of them have shut down. I have only invested in two new companies so far this year. One is a Series C SPV opportunity for Anthropic. The other is Creatify, a generative AI company that converts Amazon/Shopify listings into short form videos. This is obviously not the same pace of deployment I had back in 2020 to 2022. I wanted to do more but most of the deals I looked into were just not great fits. They were either too expensive or didn’t meet my bar for venture investments or the founders decided not to take my money. I do think things are slowly changing for the better and I am ready to do more deals for the rest of the year.
I am kind of a reclusive person so I am not usually the first angel investor founders have in mind. The 2020-2022 early investing bull run definitely impacted my deal flow as a lot of the deals were snatched up before making it to my desk. I still managed to do deals serendipitously but the overheating made me super uneasy. The sentiment started to turn last year and the market has gone 180 and become a buyer’s market for 2023. However, the valuation was still quite high earlier this year. We are finally seeing the pre-seed valuation coming down to below $10M and seed deals are being done sub $15M. Summer has been really slow but it’s conceivable many deals will be made from September to November at reasonable valuations. I start to see unique products made by passionate founders. There are also startups who have made pretty good progress but their cap table and valuation need restructuring. These deals are tough to do as they create a barrier for investors to participate compared to deals with clean and fresh cap tables. In this post-crash market, most investors are not in a position to be contrarians and to make heroic efforts to clean the cap tables for the founders. In this market, it’s best for founders to clean up the cap table proactively to make fundraising feasible.
I am hoping to do more deals to round up 2023. It’s hard to say where the economy is heading but we are in a world of rapid technological progress and builders will keep building. The liquidity crunch we have right now could actually be a good opportunity for investors and I am ready to support more founders for their journey. I am so glad the crazy easy money era for early stage investing is over and we can finally get back to basics.