What’s left for founders when investors move on?

Drastic recaps can have a major impact on equity and future upside. But good companies and resilient founders have options.

🌎 Macro Outlook: we've seen a significant shift in Fintech funding this year. Compared to last year's $54B across 2,684 rounds, funding has dipped to $29B over 1,655 rounds – a 46% decrease. Many private, venture-backed businesses are in a race against time to finance and reconfigure their operation.

🏷 Insider & down rounds: recent down rounds saw valuation fall by 30+%. Meanwhile, VCs are trying to stabilize their top companies by extending their runways and maintaining their valuations. It has repercussions for other stakeholders and often leaves the mid-tier of their portfolio “orphaned”.

🔀 M&A: after 6 quarters of decline, M&A in Fintech bounced back, reaching $24.2B in Q2 2023. This increase from $9.9B in Q1 suggests a trend where companies are crystallizing value, though investors may sacrifice long-term gains for immediate returns.

🤝 Venture buyouts: private equity (PE) firms typically won’t invest in EBITDA-negative businesses that can’t sustain leverage. This opens the door to a new investment category to realign stakeholder incentives: venture buyouts. Venture buyouts bring not just funding but also operational expertise, promising a more symbiotic relationship with founders and teams.

In short: purely financial strategies often lead to a loss of equity for founders and early backers. They also overlook the essence of a venture: the innovation, passion and hard work of its creators. It's time for new approaches like venture buyouts that recognize and reward the true worth of great businesses, in line with Charlie Munger's wisdom — "wonderful businesses at fair prices”. For founders, it’s a renewed opportunity to see the value they've created fully realized.