At Vibranium.VC, we regularly attend focus events on a monthly basis, and sometimes even multiple times per month. The agendas for these events are always packed, and as a result, we have decided to start a new series of blog posts dedicated to sharing the insights and knowledge we gain from each event we attend.

In the beginning of April, our CEO & Founder Zamir Shukho was among the panelists at the ACGSV’s C-Circle event called “Raising Capital in Uncertain Times”. The event focused on how companies are currently securing capital and featured the perspectives of a VC, Investment Banker, and a Lender.

2023vs.2022 statistics in venture funding

After record-breaking years of 2019–2021, in 2022, venture funding declined from 2021 levels by $236 billion (from $681 billion to $445 billion). Venture funding in January 2023 was 50% less than in January 2022 and startup company valuations are falling. Rising interest rates have made the cost of commercial loans much higher and banks are tightening requirements.

Moreover, executives and investors alike are still trying to decide if the US is actually going into a recession or might already be in one.

All of these factors are making it difficult for many companies to secure capital in this uncertain environment we are all trying to navigate.

Insight #1. The rise of regional banks

Following the collapse of SVB, many startups have been transferring their funds to large banks. However, these banks face two major issues. Firstly, they are regulated by the Federal Insurance Company and cannot immediately repay or write off the issuance, which negatively affects their overall rating. Secondly, they are not equipped to work with startups as they lack the necessary training and knowledge of complex organizations. Moreover, their speed and convenience do not meet the required standards.

However, there are concerns about reliability, as the insurance only protects up to $250,000, so startups are advised to split their funds across multiple accounts in several regional banks to ensure full coverage. This can be achieved through a sweep account, which consolidates the company’s spare cash on deposit into a small number of accounts.

Insight #2. Big banks challenges

Unfortunately, large banks were not prepared to serve the venture sector. Despite Vibranium.VC’ our own experience of opening accounts with these big banks was quite, it was difficult in terms of speed and responsiveness. They do not really understand how venture capital works. Their managers are not well-versed in the venture ecosystem and are primarily focused on offering conventional banking services to traditional businesses like coffee shops, restaurants, and pizzerias. As a result, it is extremely challenging to find a substitute for regional banks like SVB that can offer similar levels of customer service and high-quality products for the innovation ecosystem.

Insight #3. Early-stage startups suffered less

Startups in Series B and C were hit the hardest, as their valuations dropped significantly. Early-stage startups also experienced a slight drop in valuations, but it didn’t affect them as much because they are still in the pre-seed and seed stages.

Early-stage startups have some advantages, such as more flexible structures and lower burn-rate, which allow them to be more resilient to economic crises.

In addition, early-stage startups can attract investment using more diverse funding sources, such as family funds, angel investors, and early-stage venture capital funds.

Insight #4. Strong teams now — unicorns in the future

Startups that are capable of demonstrating even a small amount of growth now are the ones that will endure and potentially become future champions. This has been the pattern in all previous crises, where resilient teams emerged during the crisis period, and eventually became unicorns and achieved successful exits from their ventures.