Optimism in the face of VC headwinds: a call to build

Rob Kimball

You don’t have to look very hard to find grim news about the headwinds startups may face in the coming months. North American tech startup investments fell 11% in Q1 of 2022 -- the first year-over-year decline in nearly two years. This came alongside a significant slowdown in global IPO activity. The leading indicators are troubling, too -- geopolitical turmoil, climbing interest rates, and the threat of inflation have put public markets into a retreat. Taken together, these factors have the potential to create an environment that’s downright hostile to founders, whether they’re raising capital, selling their product to cash-strapped companies, or seeking an exit.

No one is immune to macro headwinds, but here at High Alpha Innovation we read these headlines and can’t help but hear the Oracle of Omaha’s voice, reminding us to be greedy when others are fearful. Just because the line is moving in the wrong direction doesn’t mean there aren’t amazing opportunities out there. From General Motors to Microsoft to modern tech giants like AirBnB, Square, Uber, and Venmo, great companies have been and will continue to be founded during economic slowdowns

With that optimism, the challenges facing the broader startup ecosystem can be opportunities for the advantaged startups we make at High Alpha Innovation. Here are a few ways how:

  1. Our startups can attract amazing founders who might otherwise stay on the sidelines through a downturn. An incredibly talented potential founder might be reticent to leave the comfort of a good job in a stable company as they watch their friends and colleagues worry about (or endure!) layoffs. High Alpha Innovation startups are inherently less risky, as they come with evidence of product market fit, funding, and even a potential first customer signed up on day one. These advantages lower the risk profile just enough to pull that great entrepreneur off the sidelines and into the game.
  1. Our founding teams can focus on building, instead of worrying about a tight market for venture capital. Since High Alpha Innovation’s advantaged startups launch with pre-seed financing already in place, our teams are able to dedicate all of their energy into understanding their customer, building a product, and going to market. This is especially impactful in a headwind environment, when capital becomes more scarce, raising it becomes more difficult, and terms become more friendly to investors.
  1. Our companies have a head start when it becomes time to fundraise. For a fast-growing startup, holding off on fundraising until market conditions change is simply not an option. High Alpha Innovation portfolio companies have a suite of advantages when it comes time to attract high quality investors for subsequent financings, which becomes even more critical as the market for capital becomes increasingly competitive. Because we partner with organizations like corporations and universities to build and launch, our portfolio companies have a built-in channel partner and potential first customer in place, giving them an accelerated path to revenue. They also have access to the best-in-class High Alpha and High Alpha Innovation network, as well as specialized platform support and experienced advisors focused on fundraising.

Like everyone else, we’ll be watching the macros carefully as uncertainty continues to impact the global economy, potentially contributing to a venture capital slowdown. With the advantages our model provides to High Alpha Innovation startups, the one thing we won’t be doing is slowing down. 

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