Sahil Lavingia from Gumroad burst into the venture capital world as one of the first testers of Rolling Fund, an AngelList product that allows investors to raise capital on a subscription basis. That was 2020. Fast forward to 2022 and a lot has changed.
One of these changes? The number of pitches from founders looking to increase. “Since March, it’s down about 90%,” Lavingia told TechCrunch. “I was probably seeing more than most – around 20-40 well-controlled decks per week – and that number has dropped to around two-four per week now.” He’s also seen the quality of talent rise for people wanting to work for Gumroad — which he attributes in part to the constant rush of layoffs — and a decline in founders starting companies.
A decline in the number of founders raising capital suggests early stage startups are not as immune to macroeconomic shifts as some investors claim; in contrast, a boom in new startups would support the idea that recessions — and the accompanying wave of layoffs — are when startups are born.
“I think the total number of founders we’re going to see will be less, but the quality bar is rising.” Annie Kadavy, CEO of Redpoint
Lavingia breaks down the status of founders into three buckets: “Tourist Founders, Immigrant Founders, and ‘Born & Raised’ Founders.” Tourist founders, he said, are those who only start businesses in bull markets, a cohort he says has fallen by around 100%.
“They are rarely fundable in bear markets,” Lavingia said. “They need to hire others to build stuff.” Immigrant founders, on the other hand, care less about the reputation and status of starting a business, but weigh its risk and return. That founding cohort has been cut in half, according to Lavingia. Finally, “born and bred” founders are founders regardless of the market: “They all existed and therefore raised money in 2020-2021, so they too are not starting companies and not raising money at the same rate.”