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What is happening in the venture markets today?

Startup veterans Mark Goldberg (Index Ventures, Dropbox) and Michelle Valentine (Anrok, Airtable) talk about how the market has changed and what the next few years may look like for founders and investors.

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The market environment has changed rapidly in the last year, forcing startups to re-evaluate their strategies and become more cash efficient. But market changes have also opened up new opportunities for startups to pursue different growth models.

Mark Goldberg, partner at Index Ventures, sat down with Michelle Valentine, co-founder and CEO at Anrok, to discuss how companies and founders are rising to market challenges in 2023.

Watch the full conversation to hear Goldberg and Valentine’s insights on the current state of the market—and their advice for founders and operators navigating the startup landscape in 2023.


Michelle Valentine:
Mark, you’ve been a partner at Index Ventures for a long time now. You’ve had a front-row seat to startups and watching the market change, and now’s a really strange and weird time. What is happening in the markets today?

Mark Goldberg:
I’ve been doing this for seven and a half years, and this is an environment like I’ve never been in before. We’re at a point in the cycle where we went from “grow at all costs” mode to a real focus on quality and durability.

It’s amazing how fast the pendulum has swung from one extreme to the total other side of it, and it makes it really fun and exciting to be an investor right now.

I remember you gave me the advice—and so did many other investors back in March or April of 2022—that you’d need 36 months of runway as the market started to change.

Now, in January 2023, I feel like people are saying the same thing and that maybe that 36 months wasn’t quite enough. Why are we still in this? What’s going on?

It’s not that it wasn’t quite enough, it’s just—you now also need 36 months. So every month you’re going to need 36 months of burn.

No, I think that we’re all trying to figure out the new landscape, and the reality is most companies don’t want to go fundraise in this environment. And so when we say 36 months as a VC, it’s not necessarily precisely 35 or 37 months. The idea is you probably wanna avoid fundraising in the next 12 months if you can.

Now I think that when you go to market for a fundraise, you also probably want more than a year of cash so that you really can control your destiny and don’t feel like you’ve given up leverage in that process. And what does that mean? You need to think carefully about how you’re spending and controlling burn.

My sense is I’m just continuing to see great founders operate in this environment. And I think what this environment is forcing is: People that are really good are getting challenged in a way that’s making them better.

Or we’re realizing that some of the companies and some of the teams that started maybe didn’t have an idea that was as strong as they thought, and that’s okay. We’re going to see a shakeout that will ultimately make the entire industry stronger and more resilient.

Yes, I definitely feel, as a founder, I’ve been challenged in a different kind of way and it’s something that I’m hearing from other folks in my cohort about how they’re thinking about fundraising differently, and thinking about company-building differently.

For example, I’d say pre-market crash, the venture model was the default market model. You raise almost every year—some folks would raise twice in one year when the market was hot.

And now I’m hearing from founders that some companies are profitable and they want to continue growing that way instead of going after venture dollars. And if you do have the capital and you are pretty efficient, that’s great—to your point, control your own destiny, be able to continue pursuing growth, the VC model, but with perhaps a little bit more constraints.

MG: I think one of the really exciting things going on right now is that the well-trodden path that existed for businesses over the last 3, 4, 5 years no longer looks so obvious.

And while that’s probably intimidating, it also means that you can trail-blaze and do a lot of things that would’ve been seen as negative signals in the market in the last few years.

So if you decide to operate towards profitability, that probably wouldn’t have been looked on favorably in the climate of the bull market of 2021, 2020. Now, I think it’s a very valid choice that many companies are making, and I think we’re going to see the exciting breadth of decisions around how people decide to run their businesses now

One of the things that must be exciting for you as a founder, as an operator, is the fact that you’ve also been on the dark side of investing. So how did that previous experience inform some of the choices you’re making now as you guys are heading into a very different environment?

Good question. I think the investor experience does make me a little bit more skeptical—or scrutinize every piece of fundraising advice that founders might receive.

There’s a lot of hype around how in 2020 to 2022, VCs raised a lot of money. There were multi-billion-dollar funds being raised, and that capital hasn’t necessarily been deployed yet. People are calling this “dry powder” and saying that in 2023, there might be a fundraising avalanche where, as a founder, it’s great. You can actually go out and fundraise despite the market environment being a little bit touch-and-go right now. 

The investor experience made me skeptical. Does that “dry powder” actually exist? And I think it’s more complicated than it seems. I think about, okay, how do I make sure that Anrok is burning in a way that we can go fundraise when we want to fundraise and not have to rely on the market being good and trying to time it?

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The “dry powder” does not exist

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MG: It’s a great time to be having this conversation because I think every company I’m working with is planning for 2023 and the level of attention on quality is the unifying theme across all my businesses.

So a year or two years ago, the question would’ve been: How fast can we grow? That really would’ve been the main driving question for the businesses we were working with. And that conversation has changed. Now it is: How do we create a business that has durability, sustainability, and a focus on metrics that make sense for this business? And take something that’s working before we really start to scale it.

How are you thinking about the process for planning for 2023? A lot of uncertainty, a lot of excitement. How are you taking all those things and synthesizing it into a plan for the year?

After doing this a few times, I think I’ve found the playbook that works well for Anrok, and that is starting with a narrative.

And I think by starting at that level, you are able to tie in all of the different departments and then focus your financial forecasts, focus your goals in a way that is much more tops down than in the past—where it’s a lot of siloed teams coming up with their own plans, giving those forecasts to finance, and then finance trying to build a model, and then coming back after the board meeting and that investor saying: That’s not aggressive enough, or this doesn’t make sense.

So what I’ve found works is starting with the narrative, and then holistically coming together with the right building blocks and the right financial inputs to build higher-level revenue goals.

You use the word aggression. And it’s funny because I think a lot of times in this environment people are thinking: I have to be as conservative as possible.

We need to control our destiny, we need to be profitable. And I think that misses this opportunity to maintain a level of aggression, even if it’s within capital constraints. So a lot of the board conversations I’m having around planning are: What’s the one bet that we want to make this year?

Something I’ve been thinking about a lot is: How can we experiment faster and fail faster to figure out the most efficient way to use our marketing dollars, for example, most efficient way for helping sales ramp up and learn, the most efficient way to make sure we’re building the products that customers actually need and see value in.

Now is the time to build in iterative processes where you can learn quickly.

In the last few years we saw a lot of times that when there was a great idea, ten companies would seize that idea and go start the same business. I think this environment is gonna shake that out. I think we’re going to see one, two, maybe three companies emerge on the other side of this as winners.

Those companies, instead of fighting amongst themselves, will be able to approach very wide-open markets with a lot of runway and a lot of momentum. The survivors of this time have a very bright future in front of them.

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