📶 no more "founder friendly" terms

This Week in Venture

Late stage capital ain’t there anymore 🤷‍♂️

Earlier this week, Pitchbook released a VC dealmaking indicator report to show how founder friendly the fundraising market is.

The results are what you would expect, and companies (especially those that have already raised significant amounts of capital) are struggling to raise their next round.

Why it matters: When markets are hot and the pace of deals is high, founders have more leverage; when things slow down, investors gain back that leverage.

Investors can take more time during diligence, but more importantly, they can be more aggressive with terms.

When things were going good and the money was flowing, investors were forced to either accept unfavorable terms or pass on the investment.

There used to be an old adage that founders can choose the price, but investors choose the terms, but that went away in the last bidding cycle. Founders chose the price AND the terms, and investors didn’t accept it, they shopped it around until they found investors that did.

Now it’s time for the reckoning.

What happens next: Liquidation preferences, anti-dilution protections, and other investor provisions will become more standard in term sheets. It’s slowly already starting, and we expect the trend to continue.

Investors should be more aggressive with how they structure term sheets. They have more tools at their disposal now, and we would expect them to use those to protect their downside risk.

Founders (especially those at the growth stages where capital is most constrained) will be have to accept these more investor-friendly terms if they want to keep the lights on.

What what happens when venture-backed companies start raising new rounds of capital that make it more difficult for common shareholders to make meaningful returns?

That’s what these companies are being forced to do, and that’s where things will get interesting.

Attracting and retaining talent will become more difficult as more employees will realize their startup options are underwater or unlikely to return what they initially believed. We’ve talked to others that have negotiated job offers by asking for larger bonuses and smaller equity ownership (usually the other way around in startup world).

If you are considering joining a venture-backed startup, you should ask about the existing cap table and terms from the previous round. You don’t want to find yourself buying the dream without first understanding what all needs to happen for that dream to come true.

Elon vs. OpenAI 🥊

Elon Musk is reportedly working on launching an artificial intelligence company to rival ChatGPT.

Why it matters: Elon knows how to create news, and this story has multiple layers to it.

Musk helped launch OpenAI as a non-profit back in 2015. Three years later, he worried the company had fallen behind in the AI race for mass adoption, and he wanted to take over and run the company from Sam Altman.

Altman and the board rejected Elon’s power bid, and he decided to walk away and bail on his planned donation.

Adding to the level of drama, Musk joined a group of executives last month to call for a pause in AI development citing potential risks to society.

If you can’t stop things completely, the second best option is to slow things down, and it looks like that’s the plan here.

What happens next: It seems like Elon usually gets what he wants, but he will have his work cut out from him if this is real and he wants to take away market share from OpenAI.

If we were to make an educated guess on what happens next, it’s hard to imagine a scenario where Musk doesn’t use Twitter to his advantage. The platform has 330 MAUS, and despite some complaining about how it’s being run, people are spending more and more time on Twitter.

People are obsessed with building an audience, and the best way to do that is to consistently put out content.

Companies have already been built to help people post AI-generated Twitter content, and maybe Elon sees this as an opportunity. The other week, Twitter banned Tweethunter, one of those companies that used AI to help posters create AI-generated content.

It’s way too early to tell what happens next, but we’ll stay tuned and keep you posted as we get more updates.

Links We Like

📄 Solo GP list: 100+ solo GPs along with the best way to reach them

☁️ 2023 State of the Cloud: Bessemer released their annual state of the market

💲 The Highest Probability Lane to Get Rich: Bowtied Bull details what you need to do

🎤 Talking About Extensions: How to talk to investors about bridge rounds

🤡 The Happiness Hypothesis: Why are people unhappy the more they use technology?

Have an article you like that we should include in this section? Let us know by responding to this email.

What We’re Learning

Running programmatic SEO for new services business

We’ve written about programmatic SEO before, and we’ll keep using it as a way to build valuable content at scale.

Our latest programmatic SEO project is for our new recruiting service where we help venture capital and growth equity funds find the best investor talent through Confluence.

The goal is to create 100+ unique web pages that drive traffic to our offer.

The steps to this build were pretty simple:

1. Research other venture capital recruiters

2. Collect raw data (focus areas, geographies, seniority level, etc.) for each competitor and organize in a spreadsheet

3. Identify items a web page needs (title, meta description, featured image, blog intro, blog outro paragraph, CTA copy, CTA link, etc.) and make these column headers in a separate spreadsheet tab

4. Use Google Sheet formulas to create dynamic lists based on the data collected in Step 2

5. Use ChatGPT plugin to automatically fill in qualitative info based on unique lists (meta description, intro and outro paragraph)

6. Use Placid to automatically create image URLs based on template created

7. Build a Wordpress template to create web page for each recruiter

8. Build Wordpress template to create web page for each list

9. Create Zaps to automatically publish to Wordpress once conditions are met

We haven’t fully automated the process, so Step 9 is still manual.

If anybody has played around with a programmatic SEO build and wants to share what works, shoot us a note.

Tools: Google Sheets, Wordpress, Placid, GPT for Sheets, Zapier

Tweet of the Week

Frank Slootman business playbook

Frank Slootman brought Data Domain, Service Now, and Snowflake public.

He’s a G.

These are the pillars he has used to build businesses.

Together with Brex

Wait … you guys manage your spend?

Obvious statement alert: managing invoices and team spend is a nightmare.

Chasing down receipts, uploading to a spreadsheet, sending to another team to approve, and reimbursing your employees sounds … super fun.

Brex takes this archaic process from the Stone Ages to the modern era by giving finance teams the tools they need to operate. Dashboards, automations, integrations, and financial modeling instead of manual work that makes you want to reconsider jobs.

Give your finance team the tools they need to operate in today’s world.

VC Jobs

100 roles in VC, growth, and private equity

Thanks for reading this far and giving us a little bit of your attention this week.

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- Clay and Tyler