State of the Market: The Goalposts

Before I start, let me get two things out of the way. First, in no way am I the caller of market tops and bottoms — and that’s not the intent of this article. Secondly, I hesitated using a sports ball analogy for fear of demonstrating the forbidden investor bro phenotype, though it made the most sense in describing the phenomenon we’re seeing in market.

I fear we are entering a complex time in the financial markets. We are exiting a highly subsidized period, and no one knows how this experiment of free money and support ends. By no means is this a criticism of what has been done, as the problems being solved and ideally avoided are dynamically multivariate. Our job is to analyze situations by synthesizing data-driven conclusions, both within and outside of startups, to maximize the return of potential capital — meaning, our job (particularly in situations like we find ourselves in today) is to help filter signal from noise to help founders realize their technology’s potential.

Enter the analogy: The goalposts have changed. What was just six months ago a goal is now likely a miss.

As a founder, you may have been planning to get just to IND with your last financing- guess what? The later stage funds now want more data and more derisking. Why? Because there are older, more mature companies with a suddenly attractive risk-reward profile…

Hey SynBio — you know that awesome bench-scale KPI you had just enough capital to hit? Folks are looking for pilot scale production. Your business model include ESG focused credits/subsidization? Be ready to have investors “wait and see” how those trends hold up in a looming recession. I think you get it.

So, if we are only funded to get to a yardage that has just changed underfoot, what do we do? Here are a few strategies we are exploring and experimenting with to extend our portfolio’s technologies lifetimes as long as we can against headwinds.

  1. Full Analysis: First and foremost, rosy projections and stories about low probability revenue are done. Time to be honest and map out exactly where we are, what we are unsure of, and what levers we have to pivot as new information is discovered. A useful exercise even for a perennial optimist. Try to use probabilities as best you can to stratify across criticality. Start to plan against <at least> a longer next raise than expected.
  2. Bear Hug: If you are talking to a strategic partner, or even better, already in a deal, now is the time to bear hug them. Their inboxes are full of deals that are being shopped right now as everyone is “feeling the heat,” so you want to command their attention. Tease the data they want to see due to pipeline failures. Create case studies that illustrate your capabilities clearly. Accelerate check-ins and touchpoints with new data and idea sharing. The onus of creativity on how a partner sees your platform is on you.
  3. Be resourceful: You know that grant you were thinking about or hadn’t renewed yet? Time to turn on the jets and submit those applications. If too swamped, try to get in with an agency before their inboxes fill up too. Following an initial grant, the likelihood of continued, subsequent funding increases dramatically.
  4. Focus on the core competency: The last few years have been a tour de force of amazing new biochemical platforms. Typically, platform companies either come from or spawn a core competency. Maybe it is computer vision, maybe synthetic lethality, or maybe even ingredient production. As you synthesize a plan including forward-looking uncertainty, stick to your core. If you don’t know it yet, define it. State it clearly. This will help in resourcing trade-offs when you inevitably have to make platform vs. asset decisions as well as strategically finding aligned value through partnerships.
  5. Don’t “turtle”: Although almost reflexively as humans, we turtle when things change direction, recognize this and resist. We did this knowing if we went down, we would go down fighting! To that end, don’t hesitate to phone a friend. Reconnect with advisors, investors, and other founders — these networks are rich data sources for you. As an investor, we <hopefully> make our money supporting you (as well as pick investments). We are all too familiar that this statement does not always hold up in the ecosystem, something that fuels our fire.

There are other more difficult points that we have had to experience alongside our founders, but in the spirit of not making us all really sad, I will leave those for another time.

In the end, there is still a LOT of dry powder out there. Great teams and companies are still getting funded, and grants are still headed out the door, but the bar has just lifted. In the spirit of sportsball: go, fight, win! The mission is too important not to.

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KdT Ventures

KdT is the standard for early-stage science venture investing. We help founders and their companies re-architect the world at a molecular level.