There’s no hiding from the fact that the state of the global macroeconomic landscape is uncertain. There’s no doubt that startups have been affected by the fallout.
Simply put, the money is not flowing the way it was throughout 2020 and 2021. That’s far from a secret – we’ve harped on the need for startups to transition to leaner operations and prioritize profits.
However, another common point of emphasis for the past six months or so has been the unique opportunity at the feet of early-stage companies.
Because, as we’ve said before, it is during lean economic times that some of the most successful startups of today’s day and age got their start.
That’s a big reason some venture capital (VC) firms have actually taken the opposite approach of the broader market. For example, Index Ventures, an international VC firm based out of San Francisco, just announced a $300 million fund for early-stage and seed companies.
This is 17 months removed from the establishment of a $200 million fund started for the same purpose.
So, while the rest of the angel investing world has been pulling back on the reins, Index Ventures is putting an even bigger share of its chips into the middle of the table.
That said, the distinction between seed and early-stage companies and growth stage ones is important.
The latter has seen the most drastic pullback on capital investment, as these companies have subsisted on lofty valuations and now find themselves pressured to hit suddenly unobtainable revenue projections.
Conversely, the early-stage and seed companies are just getting their footing – an advantage given the fact that they can plan for lean economic conditions and set the best course of action from the get go.
Index Ventures shares the same outlook as the team at the Angels & Entrepreneurs Network. There will be giants founded during this current economic downturn, and those who invest at the early stages will be rewarded beyond their furthest imagination.
But, even more importantly, those early-stage companies are the most in need of guidance and help, something VC firms feel they can provide.
“We see more experienced angels joining rounds across all geographies, and that’s a good thing,” Index Ventures partner Danny Rimer told TechCrunch. “Building a company requires different expertise, and having angels of different backgrounds is a significant advantage. It’s why we’ve set up Origin II as a highly collaborative fund that’s open to working with seed funds, solo GPs and angels.”
interestingly, “having angels of different backgrounds” isn’t something people first attribute to the venture capital realm. While there will be diversity of opinion among an investment group, it pales in comparison to that experienced through equity crowdfunding, where founders can benefit from hundreds to thousands of investors’ respective expertise.
Rimer went on to say, “Our hope is that given everything that has happened to this sector this past year, we will focus on companies that want to build real value for users, solving a real pain point rather than something speculative in nature.”
This provides a useful reminder to prospective investors as to the value proposition of startups. However, speculative doesn’t preclude the potential to build real value, as evidenced by the substantial investment influx in the quantum computing realm.
In addition to the federal government earmarking $900 million to quantum computing research, there are substantial sums of money flowing into research in the field.
Despite its long-term nature, the potential value to investors is astronomical. If (or when) someone finally cracks the quantum computing conundrum, it will revolutionize the way we as a society operate and process information.
And while the industry is very much in the early stages still, the amount of money being poured into the field tells a lot.
For all we know, these could just be the companies founded during this downturn that emerge as the next trillion-dollar-corporations.
It’s always smart to follow the money. Well, early-stage and seed companies, and those in the quantum computing realm, seem to be getting some justifiable attention.
Just a little food for thought. After all, it is Thanksgiving week.