the market of Tech companies have changed, as evidenced by a weak IPO market, a focus on profitability, and plenty of pivots. However, despite the ongoing market correction, venture capital is a booming asset class. Last year, according to data from CB Insights, venture investing hit $621 billion, up 111% from 2020 levels. This year, while valuations are seeing some pullbacks, investors say expensive term sheets show that there is still hope for the founders.
In fact, it is a mixed message market. For startups graduating past the seed stage and thinking of landing the coveted Series A, what’s the best way to navigate these times? Stellation Capital founder Peter Boyce II joined us at TechCrunch Early Stage to answer this question, along with many more, in his Series A-focused chat.
Boyce, who left General Catalyst to raise his own $40 million fund, spoke from the perspective of a general practitioner who helps portfolio companies design their next fundraiser. We talked about a weird power shift dynamic founders employ and why 20% fluctuations in his valuation don’t matter when he’s young.
A not so common practice
When a founder raises a Series A round, it is often the first time they have formally established a board. As a result, Boyce recommends that founders perform reverse due diligence and interview not only the company, but also the person who will hold a seat on their board for potentially more than a decade. It is important to get it right.
The investor said founders should consider a number of factors when choosing a board member, including work style, expertise in a specific domain, access to follow-on capital and broader resources. Interview portfolio companies, look for mutual connections, and better yet, don’t be subtle in your research. Reverse due diligence, Boyce said, can show an investor that you’re “dead serious” about your business.
“I’m actually quite surprised that this isn’t a more common practice,” he said. “The reason I love it for founders is that it totally changes the power dynamic once you’ve started doing your own homework on the investor…like suddenly putting them in a totally different interface and relationship with you.”