As Tech Stocks Fall, Startups Find VCs Setting Much Stricter Terms
With the economic climate turning chilly and tech stocks tumbling, venture capitalists have begun presenting starts with much tougher terms.
That’s according to a Thursday (June 30) report by the Wall Street Journal, which spoke with a group of entrepreneurs at the recent Collision tech conference in Toronto.
“We’re raising a Series A right now,” said Dejan Mirkovic, chief executive and co-founder of Goose Insurance Services Inc., a Vancouver-based InsurTech startup.
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“The issue is that the market has a lot of capital to deploy, but everyone’s a little gun-shy. A 30% haircut right now is what we’re seeing,” he said.
He added that one potential investor asked for so-called participating preferred shares, a deal structure that became tough for investors to sustain amid the height of the venture boom.
“We said no,” Mirkovic told the Journal.
Learn more: Why 2022’s Tech Wreck Doesn’t Have to Mean a Dotcom Crash Landing
If a company is sold, an investor with participating preferred shares would be guaranteed to recoup their original investment, along with a percentage of the remaining proceeds, said PitchBook senior analyst Kyle Stanford.
David Cancel, co-founder and executive chairman of AI-based sales, service and marketing company Drift, launched his company in 2015 with the help of a $10 million investment. He told the Journal he ran into one of the investment partners at Collision, who joked that if Cancel was starting a new business today, the check would be for $7 million, not $10 million.
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PYMNTS explored this topic earlier in the month when i2C President Jim McCarthy spoke with Karen Webster.
“To say these are extraordinary times is a big understatement,” he said. “To put it into the context of the beginning of this year, we were kind of playing through some of what I'll call real disasters that we kind of all skated by, like the WeWork situation [but] in the FinTech space.”