Without a doubt, the investment landscape has changed. The bar has gone up and will stay up for some time. If you’re looking to fundraise in 2023, it won’t be easy – but for high-quality companies not impossible!
Through our discussions with venture capital firms (VC) and private equity firms (PE), we can share in this blog (and the related articles included):
- What the investment landscape looks like for 2023
- What makes a good investment opportunity
- How have valuations changed in this current climate
- Tips on the “must-haves” for your investor discussions
Related article | Flags for investment – is your business ready to fundraise in 2023?
What does the 2023 investment landscape look like?
During 2021 VC and PE firms raised record amounts of cash, so coming into 2022, the investment world was sitting on a mountain of cash. When we emerged from COVID, there was a boom in investment.
However, 2023 is a different landscape altogether, and investment sentiment has changed. Economic and geopolitical turbulence has resulted in cautious investors. This uncertainty has created a headwind for what investors can invest, how they can invest, and at what valuation.
Investments are going ahead but predominantly in existing portfolios where the PE and VCs know the company and then to ‘the best’ of rest seeking investment.
Related Article | How do PE and VCs invest in a recession?
Venture Capital and Private Equity: what’s the difference?
If you are planning to fundraise in 2023, the first thing to appreciate is the different types of funding available and which is the most appropriate for your company’s growth stage.
VC firms focus on early to mid-stage companies, typically loss-making and fast-growing.
Related Article |What are the different stages of VC funding?
PE firms work with high-growth, established and profitable businesses, usually with EBITDA above £0.5M.
Related Article | How to use EIS to attract PE investors
What makes a good investment opportunity?
The million-dollar question for companies looking to fundraise in 2023 is “what makes a good investment opportunity?”.
The answer is:
- Excellent management teams
- High quality of earnings
- Good forward visibility of earnings
- Access to high-quality data used in daily decision-making
- Robust and accurate financial statements
We detail these specific points in the article How do growing businesses obtain PE or VC funding in 2023?
How have valuations changed in this current climate?
The good news is that valuations on high-quality companies will not be impacted because a lot of cash is chasing a small number of deals!
However, there has been a significant reduction in valuations in software and technology companies. At the beginning of 2022, good quality technology companies were valued at around 6-8x multiples of ARR (annual recurring revenue). This has reduced to 4-5x ARR, sometimes lower depending on the growth profile of the business.
The valuations for businesses with lower-quality earnings will have been reduced by a further couple of points.
Tips on the “must-haves” for your investor discussions
Finally, here are our top tips for companies considering a fundraise in 2023 for their investor discussions:
- Be realistic with your valuation expectations
- Ensure you understand the risks that face the business
- Get on top of the numbers!
- Don’t forget to think about your exit strategy
We detail these specific points in the article How do growing businesses obtain PE or VC funding in 2023?
Need help with a fundraise?
If you need help with a fundraise please get in touch with us
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