VC Perspectives on The Voyage Across Stages with Work-Bench, Lux Capital & Andreeseen Horowitz

Jun 14, 2024
VC Perspectives on The Voyage Across Stages with Work-Bench, Lux Capital & Andreeseen Horowitz
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Our sold out May NY Enterprise Tech Meetup (#NYETM) featured ​​an annual fan favorite — our VC perspectives panel on “The Voyage Across Startup Stages” with a killer lineup of female investors, including Priyanka Somrah (Principal at Seed Stage firm Work-Bench), Grace Isford (Partner at Series A firm Lux Capital), and Sarah Wang (General Partner for Andreessen Horowitz’s growth fund).  

They dove into key themes they're tracking, what it takes to raise venture funding, how to think about milestones from Seed through Growth, and lots more. 

Check out our recap below and the full recording here

How Has 2024 Differed From the 2021/2022 Market Peak?

During the 2021/2022 market peak, many large funds over-deployed at too expensive of valuations. The following year in 2023, presented a wildly tough market for selling software accompanied by a big slow down in investment activity. 

We can consider 2024 to be a recalibration period for this turbulent market. Our panel highlighted several key changes, including: 

Fundraising and valuations: Today, many founders are opting for smaller Seed rounds in order to establish traction before seeking out a Series A (note: this mostly applied to non-AI companies…many AI founders are still raising crazy numbers right off the bat). This approach aligns with the more conservative capital deployment seen at the Series A stage, where valuations have become more reasonable, typically around $40-60 million, with fundraising amounts of approximately $10-12 million.

Growth at all cost mentality: The “spend, spend, spend!” mindset is now a thing of the past. Most companies that endured (and survived!) the challenging years have implemented significant budget cuts and restructuring to become more efficient, leading to today's current generation of more sustainably built startups.  

Retention: Retention rates peaked in the high 90s in 2021/2022, then dropped into the 50s in 2023. To maintain high retention, Sarah advises that founders assess whether their product is critical for customers. For example, in recent years, she’s heard of customers with over 300 SaaS applications doing budget cuts and deciding to eliminate 200 of those applications. So she warns founders to ask themselves, “Are you in the 100 who stays or the 200 that goes?”

How Much Dry Powder Is Accessible? 

While mega funds are still making headlines (such as Andreesen Horowitz’s fresh $3.75B Growth Fund), there is a noticeable slowdown in deployment. The abundant “dry powder” of 2021/2022 isn’t as accessible as when funds were cash-heavy and quick to invest. Today, most remaining capital has already been allocated. This is what we call “wet powder” – aka money reserved for current portfolio companies who need bridge rounds and who haven't quite crossed the chasm of product-market-fit yet. Yet, at Work-Bench:

“We’ve had a consistent and disciplined approach in investing in Seed rounds. What drives our approach? A concentrated focus with meaningful ownership. While it’s incredibly challenging to maintain discipline when you’re going through hype cycles, it helps us align with founders who are building for the long-term.” - Priyanka Somrah

What Makes Companies Stand Out Today?

“Startups are being separated into “the haves” (aka AI startups and second-time founders demanding high valuations) and “the have nots” (aka everyone else, who may have a strong idea, team, and product, but are getting overlooked in today’s AI mania).” - Priyanka Somrah, Work-Bench

Startups that manage to stand out are those addressing tangible enterprise pain points and focusing on key areas:

Customers: Understanding the target ICP is critical. Who are they? What are their biggest pain points? What are they willing to pay? Who is the user and who is the buyer? This will help create a clear pattern to sales repeatability.

Annual Contract Value (ACV): Generally, the more money customers are willing to spend on a solution, the more critical of a problem they have in need of solving. So, if customers are only willing to pay $1000 per year, it signals a low priority problem.  

Creativity: Early go-to-market (GTM) strategies require creativity. Don’t rely solely on your assumptions about what will work with your ICP. Gather as many data points as possible and seek other repeatable ways the product can be used across an organization—not just today, but also for future adoption.

Strong Narrative: Founders must be able to answer, "Why me and why now?" Initial success often hinges on the founder's domain expertise and their informed perspective on the current market landscape. Continuously test and refine this story with as many potential customers as possible. For example, even if a company isn’t currently utilizing AI, a strong narrative might emphasize how their mission is to gain access to vast amounts of data now, with plans to create a well-trained AI model in the future.

Grace gave the example of a company that wasn’t yet utilizing AI. Their narrative, however, was that they don't need AI just yet, and that their current mission is to get access to vast amounts of data with the future to create a well-trained model.

Let’s Talk AI In The Enterprise: What’s Hot & What’s Still Hype?  

AI has been around for a while, but large language models have become particularly popular over the last 18 months. According to Grace, there are very few large-scale generative AI models in production, with coding and support being notable exceptions. At this early stage of AI adoption, while it's possible to plug into an API, building the necessary integrations and workflows at scale remains a significant challenge.

“We’re in the teenage phase of people using generative AI in production. There is a huge opportunity for all of you in the room.” - Grace Isford, Lux Capital  

What Advice Do You Have For Founders? 

Advice from Priyanka: While Work-Bench invests in Seed-stage startups mostly pre-revenue and our due diligence process doesn't quite rely on ARR, we always want founders to have a clear understanding of their real path to commercialization. If you’re building an open source project and have aspirations to turn it into a viable business, you need to think through your plans to grow engagement and to start commercializing your product. Not many founders think through monetization in the earliest days.

Advice from Grace: Always ask yourself, “what is your 10x differentiator?” and then voice that to investors. As an example, Langchain has an incredible developer community that enables them to move into new product areas even if other companies are able to build similar products. As other quick examples, Modal has an unmatched developer experience and Runway is going deep with a specific ICP (filmmakers and creatives) by integrating their product step-by-step into the workflow. So, what is the thing that makes you unique?

Advice from Sarah: Check out a recent blog post from Andreesen Horowitz Partner David George called “A Year to Be Great.” This post outlines the metrics growth startups should hit in 2024.  

If you’re an early-stage enterprise founder or operator — connect with us directly to chat about anything GTM or check out our events page to stay in the loop on all things happening in the Work-Bench community.