What Top Seed VC Brad Svlurga Predicts for the Fall Investment Climate

  • For Brad Svrluga, co-founder and general partner of venture capital firm Primary, venture deals are on the rise.
  • But he said startup funding has not returned to the levels of the past two years.
  • That’s why he thinks this new normal is good for founders who need to set “rational expectations.”

After the first summer slowdown in two years, startup founders and venture capitalists across the country are already starting to see signs of a pullback.

For top seed startup investor Brad Svrluga, there’s no better way to kick off the comeback than at the New York Summit. The New York Summit was his VC firm Primary’s annual tech conference two weeks ago in midtown Manhattan.

It was Primary’s first in-person summit since 2019, and more than 2,000 investors and founders signed up to attend—nearly half of them from out-of-state. High profile investors spoke at the conference, including Forerunner’s Kirsten Green and angel investor Andy Dunn. “There’s definitely been some pent-up energy around going back to the office and moving fast again,” Svrluga said.

But just because deal and VC activity is in full swing doesn’t mean everything is back to “normal” in 2021, which saw record numbers of VCs and deals. This year is very different: startup valuations in 2022 have plummeted, and layoffs have plagued tech companies large and small.

For Svrluga, that’s actually a good thing: “At the height of the frenzy in 2020 and 2021, what frustrated me the most was the speed of transactions,” he said. “How often do we meet with a company on Monday and they’ll tell us they’re looking for a term sheet by the end of Wednesday or Thursday.” Today, founders should wait weeks to see a term sheet in their inbox, not a few sky.

Additionally, with public and private markets constantly changing, Svrluga and his lead partners have time to conduct proper due diligence on startups before deciding whether to invest. In 2021, the market is extremely competitive, which means VCs can deliver term sheets for some startups in minutes.

“The reality is we’re seed investors and we’re building partnerships that will last five, six, seven years. We’re getting married. Unlike marriage, you can’t divorce in this industry. Once you own the stock , you own the stock.”

Still, the days of easy money and competing term sheets are gone for early-stage founders looking to raise capital today. Svrluga emphasizes the importance of staying lean, having “reasonable expectations” about how much capital you really need to raise to keep your startup going, and thinking hard about how the VCs you put in match your startup.

“It’s really hard to raise a Series A today if you don’t have at least some really good evidence of what your business model is going to be and why it’s going to work,” Svrluga said. It doesn’t make sense to buy a seed-stage company after $400,000.”

“We want aggressive but responsible founders,” he said.

With the market correction still underway, it’s unlikely founders will fully complete these shifts in a few months. “I don’t think we’re going to get all the way there until some companies that were supposed to be successful but shattered some really ugly glass-shattering and shattering dreams by screwing up the cap table and they’ve been operating completely unrealistically,” St. Fruga said.

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