How to Navigate Venture Capital Market Corrections

Venture capital is bleeding cash. If you’re building a startup, this changes everything. In 2023, U.S. venture firms invested $60 billion more than they returned. Their worst performance in over a decade. IPOs and acquisitions have dried up, and even AI’s meteoric rise isn’t delivering exits. For startups, this isn’t just a funding slowdown. It’s a shift in the rules of the game. Here are 3 lessons every founder needs to learn now: 1️⃣ Profitability isn’t optional anymore. It’s urgent now. VCs are no longer betting on dreams. With their own returns shrinking, they need startups that generate real cash, fast. This doesn’t just mean showing revenue potential. It means proving it with traction. The startups that will survive this downturn are the ones with numbers they can show today, not promises for tomorrow. 2️⃣ Tougher deals are here. And founders will feel the squeeze. Funding isn’t drying up, but it’s coming at a cost. VCs, under pressure to deliver returns, will drive harder bargains. That means smaller valuations, more aggressive dilution, and stricter milestones. If you’re negotiating, understand that capital isn’t cheap anymore. Your ability to show clear ROI is your leverage. 3️⃣ Exits are no longer optional. They’re the metric VCs care about most. In a market with few IPOs and acquisitions, VCs are laser-focused on how you’ll deliver their payday. It’s not enough to build a great product—you need to map out a clear, compelling story for who will acquire your startup or why it will thrive as a public company. Start thinking: How does this roadmap lead to liquidity for your investors? You don’t need more capital. You need clarity. Focus on what matters: building a product that solves a real problem, creating systems that generate revenue, and planning your future exit. The game isn’t about how much you raise. It’s about how little you need. Play the long game. Build better. Win bigger.

Recession-proof businesses have been top of mind for me lately as I think about diligence criteria. With recession risk now north of 60% and rising, I’m anticipating longer sales cycles across the board. Procurement teams are either increasing scrutiny or pausing on signing new contracts or renewals altogether. Recessionary environments reward founders who are:  - Focused - Capital efficient - Effectively and consistently communicative - Deeply in tune with customers' pain points (customer surveying never stops!!) Here are a few thoughts on how we’re advising our portfolio and considering new investments at Collab Capital: 1. Build painkillers and cures. In classic VC lingo, we should ponder: is your product a vitamin, a painkiller or a cure? One question most VCs ask themselves before writing a check is whether the solution in scope is a need to have or nice to have for their customers. If your product is seen as essential to revenue generation, and/or cost savings, you're more likely to survive budget cuts. 2. Shorten time to value. If customers can realize value in days or weeks (not months) they’re more likely to convert and retain. 3. Prepare for longer sales cycles. Budget conservatively and adjust your financial forecasts. Now is the time to review expenses, cut nonessentials and reinforce fiscal discipline. 4. Focus on customer retention. Strengthening existing customer relationships allows you to maintain revenue even as new customer acquisition slows - Be proactive about renewals - Solicit feedback (and act on it fast) - Understand budget approval timelines - Consider flexible pricing models if needed Most VCs pay very close attention to how a company fairs in a recessionary environment. Once we’re on the other side of this, it will serve you well during your next fundraising cycle to show you were able to maintain your customer base and land a few new wins during the storm. Likewise, this strategy keeps the lights on in general. : ) Would love to hear how other investors and founders are thinking about this. What are you doing differently in this environment? #venturecapital #startups #recessionplanning #customersurveying #procurement #diligence

Despite preparedness, anyone else in a state of emotional shock? Here are some ideas on how to navigate that side with rationality: You're not alone in feeling a little tighter in the chest right now - that's what risk aversion feels like. I can assure you that it drives decisions—slower yeses, smaller checks, safer bets. For founders, especially in the early days, that emotional climate matters. It’s harder to raise. It’s harder to sell. And it's harder to gauge when the fog lifts. Have confidence in what you've built, and in what you're building: 💡 If you're pre–product market fit, stretch out cash to survive another NINE months. Yep. Be ruthless with cash. Default to survival. 💡 If you're post–product market fit, your customers will hesitate. Don’t mistake that for disinterest—it's just uncertainty. Adjust accordingly. (Oh, and if you're not already profitable, then follow the guidance above.) 💡 If you're 'this close' to raising a round, keep going; demonstrate your resiliency and fortitude through confident transparency. And close as soon as possible. This isn't about panic. It's about posture. The founders who make it through these periods are clear-eyed, patient, and a little paranoid. But—and this is the hard part—they don’t stop experimenting. They just do it with sharper constraints. You can cut burn without cutting ambition. You can slow spend without slowing down the work that truly matters. To our founders at Bee Partners—this is what we signed up for. We're in it with you, irrespective of cycle. #VC

When Hany and I decided to start ACME Capital, we went on a hike to work through the details. I vividly remember a central debate (the first of many): whether sourcing or exiting companies was more important. Hany was adamant that exiting, at minimum, deserves a position equal to sourcing. He was right; and he loves being right. In today's Venture 4.0 environment, this insight has proven critical to survival. → A defining challenge of Venture 4.0 is the stockpile of unicorns stuck in private purgatory. This "liquidity debt" left by the previous era must be addressed, and how we address it will fundamentally shape this next phase → The capital recycling loop - VCs returning capital to LPs, LPs recommitting to VCs - is breaking down, endangering future innovation financing. This is an ecosystem-wide problem requiring an ecosystem-wide solution → Today's secondary funds are thriving ($162B 2024 volume) and offer a critical but partial path forward, yet this volume is still dwarfed by the sheer scale of the $2.7T unicorn backlog that continues to expand daily → Investment bankers won't solve this; they're transaction-focused and excel at optimizing deals that are ready, not manufacturing exits from scratch → Founders shouldn't be expected to solve it; their singular focus on building exceptional businesses is precisely what creates exit optionality in the first place → A large part of the responsibility falls on us as VCs. Exits are one of the most critical parts of investing - arguably the hardest part - especially in challenging markets → We can not be passive participants in venture’s exit ecosystem → The days of "invest and hope" are behind us. Being a venture capitalist in Venture 4.0 means we cannot simply monitor quarterly board decks and offer support - we must align with the Founders and actively architect and pursue exit solutions for our portfolios → This means getting creative: driving consolidation among portfolios, developing meaningful relationships with strategic acquirers, building connections with PE firms, exploring joint ventures, and dare I say, even revisiting SPACs and other creative paths to liquidity → My dad (“Big AL”) would say we need to get off our keisters. If you don't know how to actively drive exits for your portfolio companies, you're not delivering the full value you promised to your founders and LPs → To thrive in Venture 4.0, VCs need to roll up their sleeves, leverage their networks, and manufacture liquidity - rather than hope and wait for it to appear Pictured: Hany and I on that fateful hike. Hopefully, this post counts as a sufficient 'I told you so' for him ;).

One person's loss is another person's gain. We have hit the lowest VC distribution environment since the global financial crisis. This is creating urgency for VCs to return cash to LPs. This is leading some investors to make short-term sacrifices to make their LPs happy and create some liquidity. Usually, VCs preach patience, waiting for the long-term massive exits. But already extended horizons for LPs have forced some hands early: - To generate liquidity, VCs are selling secondary stakes in top portfolio companies at discounts as high as 60% compared to the valuations set by previous funding rounds. - A cash-flow positive high-growth startup is even running a small primary fundraise with a large secondary component where early VCs exit at a discount - Eager for returns after 14 years of drought, some VCs accept leaving cash on the table versus chasing maximal gains The dynamics reflect changed attitudes about the viability of outsized returns in the long run versus securing cash for LPs now. With distributions at 14-year lows, locking in 2-3X return now starts to appeal more even if 25X seems possible someday. In summary, despite aiming for home runs, VCs are shifting strategies in this environment to get singles and doubles multiples on their investment. Smaller funds and syndicates that are buying the secondaries at discounts and have the patience to wait are the ones really winning. #vc #investing #invest #founder #angelinvestor #venturecapital