Startup Founder Mentality: Optimism remains high as founders prepare to increase fundraising activity

In today's uncertain global landscape, startup founders face a challenging environment. Unlike the more favorable conditions of two or three years ago, securing venture capital funding has become increasingly difficult. The Federal Reserve's future decisions on interest rate cuts remain unclear and the upcoming presidential election introduces the potential for significant changes in the startup ecosystem, with possible new policies and regulations. However, amid these uncertainties, ongoing innovation continues to stimulate growth. While we can’t confidently say that the tide is turning, it appears things are getting better.

New data from QED’s first-ever founder survey, which surveyed 400 U.S. startup founders, revealed that the majority of founders (65%) are more optimistic about their ability to raise capital today than they were 12 months ago and 76% indicated that they’re planning a fundraise in the next 12 months.

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Founders’ optimism is a bit surprising given the tumultuous funding environment over the past few years. Over a quarter (29.5%) of founders stated that they last raised a funding round in 2020 or before. This is followed by 7.8% in 2021,16.5% in 2022, the majority in 2023 (32%) and 14.3% in 2024.

“It’s unlikely that founders and VCs will see a year like 2020 anytime soon. It was a record year for VC investments in the U.S., and founders getting back into fundraising mode must internalise that, especially in the fintech space,” shared Nigel Morris, co-founder and Managing Partner of QED Investors. “While the environment is improving in 2024, VCs are keeping the bar high while determining which opportunities are worth pursuing.”

Survey data shows that 55.3% of founders have 12 months or fewer of runway and are in need of venture funding in order to survive.  

Of the 76.5% of companies who have investors, 45.3% have been advised by investors that a down round in the next 12 months may be necessary. Regardless to the advice of investors, below is a breakdown of how much founders are planning to raise in the next 12 months.

"Founders preparing to raise capital should internalize that today's bar and the bar from 2+ years ago aren't the same. Investors expect 2X, 3X and sometimes even 5X the traction for a startup to grow into its valuation if the last money was raised during peak madness. For some startups the answer is an internal bridge round to give them time to grow into their last valuation. But for many startups the answer is a clean down round to reset everyone's expectations and set the company up for future capital raises."

As startup founders prepare to get back into the funding mentality and meet with current and potential investors, there are a few factors keeping them motivated, focused and optimistic but also could potentially set them back.

The Bright Spots

Startup founders have an urgent optimism to them. Despite the volatility they’ve experienced over the past two years, this optimism remains unchanged. Even today 86.3% of founders would tell new founders that it’s worth starting a company.

What’s keeping them focused? When asked to rank what’s most important in keeping them motivated to build their business, they shared the following goals:

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It’s great to see that creating a successful company culture is top of mind, as 51.3% of founders shared that they plan to increase hiring in the next 12 months. In addition to keeping culture a focus, 51.5% are planning a new product launch, 39% are preparing for global expansion and 33.3% will be pivoting their business strategy.

Founders also indicated that they’re preparing for a change in executive leadership (26.3%), M&A (20.5%), bankruptcy (19.8%), reduction in workforce (RIF) (17.5%), and IPO (16.7%).

When asked about measuring success, it’s no surprise that an overwhelming number of founders look at revenue growth (71.5%) and profitability (71.5%) to ensure they’re on track. However, those aren’t the only metrics founders are using. Respondents also shared that they look at:

• Customer acquisition (47.3%)
• Employee satisfaction (40%)
• Latest valuation (27.3%)
• Company mission (21.8%)
• Unit economics (20.5%)

“It’s nice to see the “locked market” return to some normalcy. Given the nature of VC-backed businesses, it takes a bit more time for expectations to reset and for companies to maneuver to a better place. We are seeing much more realistic forecasts from our companies and much more efficiency for each dollar used,” shared Chuckie Reddy, Partner and Head of Growth at QED Investors. “Couple that with more realistic expectations on pricing, and we are seeing more rounds coming together. This has been a healthy reset for the industry and the extension of runway advice most adhered to allowed for that discovery period. Optimism should rightfully be returning to the Founder community.”

External Impacts

The Federal Reserve’s interest rate campaign is not over, but there are signs we are getting close. Interest rates play a pivotal role in the decisions of startup founders, especially those in fintech. Layering that with a presidential election creates multiple uncertainties founders must navigate as they move their business forward.

In the survey, when it comes to politics, founders are split on which party is better for business. Thirty-three percent of founders share that a Democratic party majority is better while 30% say a Republican party majority is better.  

Moreover, an election isn’t the only thing that is expected to impact startups in the next year. We asked founders to rank the factors they expect to have the biggest impact on their business next year, from the most impact to the least. Here’s what we found:

Game-changing technologies, such as artificial intelligence (AI) continue to impact the decisions that founders make. The majority (62.8%) of founders have incorporated AI into their business, while 37.3% still have not.

Perhaps what’s more interesting is the reason behind founders jumping on the AI bandwagon. Of the 62.8% who have incorporated AI into their business, an overwhelming 66.5% of founders shared that they have incorporated AI into their company because they think it’ll help them get more funding. This is followed by leveraging the technology for content generation (65.3%), cost savings (57.8%), new product offering (50.2%) and for fear of falling behind competitors (47%).

“It’s staggering to know that, of the 62.8% of founders who have incorporated artificial intelligence into their business, two-thirds have done so because they believe it will help them get more funding," says Laura Bock, Partner at QED Investors. “I don’t recommend that founders change their business models just to cater to investors. It must fit into their strategic goals.

“With that said, AI is a powerful tool, and we will see its impact on every sector, especially in financial services. Many companies can benefit from AI, whether in simply creating efficiencies in internal processes or layering into their product to drive more value for end users. Companies must start with a deep understanding of the technology’s capabilities and limitations, and then identify the problem(s) they wish to address.”

What Founders Look for in Investors

Founders understand that they’re going to need the support and the expertise of investors to navigate that road ahead. When asked what investor resources would be most valuable to them, founders shared:

• Connections to investors’ network (65.8%)
• Coaching / mentorship (41.3%)
• Support exploring new markets (40.5%)

This demonstrates the importance of strategic advice and support that investors offer founders beyond check size.

While we hope to avoid a recession, if we were to face one, founders would look to turn to the wisdom and experience of investors to navigate challenges:

“With 76% of founders planning to raise capital in the next 12 months, it’s crucial to have investors who have experience building and scaling companies in a downturn. There’s capital out there, but we’re going to see investors be much more selective about the companies they fund,” commented Nigel Morris, co-founder and Managing Partner of QED Investors. “I have battle scars on my back from repeatedly navigating the same pitfalls. Hands-on investors who also have operational experience can kink the curve on outcomes and help founders get their mindset in the right place as they enter fundraising mode.”

Founders also believe that, in a tight funding environment, the types of personality traits that appeal to investors can be different. It’s not clear what this means for how they will approach the fundraising process, but it is clear that they believe some personality traits are more of an asset than others.

“Throughout my career, I’ve come to find that a combination of confidence and decisiveness, paired with empathy and vulnerability, is a winning combination for a founder. I find it interesting that restlessness is a trait that founders believe will be viewed as a liability in a tight funding environment. The toughest problems are often never fully solved, and restlessness shows founders are continually seeking a better way,” shared Nigel Morris, co-founder and Managing Partner of QED Investors. “However, being a restless leader must be balanced with sensitivity and compassion for those around you.”

Potential Setbacks and Challenges

Being a founder is one of the most rewarding jobs but, as with any job, it comes with challenges and setbacks. It can be difficult to find balance in life and make time to take care of yourself, which is substantiated by the data.

We asked founders to share the setbacks they’re facing, and almost half stated that they have difficulty prioritizing mental health as well as physical health.

Founders shared that they experience the fear of failing (52.5%), difficulty maintaining personal relationships (52%), difficulty prioritizing mental health (48%), difficulty prioritizing physical health (47.5%), the inability to let go of control (34.5%) and imposter syndrome (26.5%).

“As a two-time founder, I’m no stranger to imposter syndrome or the dreaded fear of failing. Entrepreneurs' desire for success is insatiable, and that’s why we admire them so much," shared Nigel Morris, co-founder and Managing Partner of QED Investors. “As I sit on the other side as an investor, I’m even more aware of how a founder’s ambition can cause them to sacrifice their mental health. It’s an investor’s responsibility to ensure they have the guidance, support and tools to balance ambition and mental health.”

An investor’s responsibility is not just to ensure that a company stays on track to achieve profitability. Investors have a responsibility to ensure their founders and their team have the support and resources that they need to take care of themselves, physically and mentally.

The data makes it clear that 2024 will be an active year for founders. Whether they’re fundraising, launching a new product, or growing their team, they will need support. Investors, be sure to check in and get ready for a busy second half of 2024.

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Methodology:

This survey was conducted from June 4, 2024, to June 11, 2024, by Pollfish on behalf of QED Investors. The survey collected responses from 400 U.S.-based founders, with the minimum age requirement of 18. Only respondents who indicated that they held the role of Owner or Partner, President/CEO/Chairperson or C-level executive were able to take the survey. A disqualifying question was placed at the beginning of the survey to ensure that only respondents who indicated that they are ‘A founder of a startup’ were able to take the survey.

Of the respondents who took the survey, 58% identified as male and 42% identified as female. The respondents’ ages ranged from 18-24 (5.75%), 25-34 (32.25%), 35-44 (32%), 45-54 (14.25%) and >54 (15.75%).‍

About Pollfish:

Pollfish utilizes a survey methodology called Random Device Engagement. RDE is the natural successor to Random Digit Dialing.

Pollfish delivers surveys inside popular mobile apps, and RDE utilizes the same neutral environment as Random Digital Dialing, and an audience who are not taking premeditated surveys, by reaching them inside mobile apps they were using anyway.

Pollfish uses non-monetary incentives like an extra life in a game or access to premium content. With additional layers of survey fraud prevention including AI and machine learning, Pollfish removes potentially biased responses, improving data quality even further.
See the full methodology, here.

Contact:

For more questions regarding the data and methodology or to schedule an interview, reach out to:

Rachel Dix-Kessler: rachel@qedinvestors.com