Down Rounds Are Increasing

Hey y’all — here’s today at a glance:

🔗 Houck’s Picks

My favorite finds of the week.

Fundraising

• Sridhar Arunagiri on the common gap from 100+ founder pitches this year (Link)

• Barak Peled on what founders don’t realize about investor capital (Link)

Growth

• Joher Khan on where your first 100 customers come from (Link)

• Greg Isenberg on the clearest path to building a $100k MRR mobile app (Link)

• Wilmer Terrero on the one change that increased conversion by 15% (Link)

ICYMI

• B2B identity management and scaling best practices for apps built on AWS (Link)*

• Jen Abel on a sales take founders like haven’t seen before (Link)

• Robin on the 3 things the best founders see clearly (Link)

• Markus Wagner on the pros & cons of bootstrapping vs. seedstrapping (Link)

• Robert Kaminsky on how the successful founders he’s worked with act (Link)

• An upcoming and totally free virtual founder & investor conference (Link)

💡 Opportunity: AI Product Data Cleaner

Have you noticed how ecom tends to adopt new things very quickly?

If you’re in Silicon Valley you might not even pay much attention to ecom, but I keep an eye on it.

Everyone selling in the space is always looking for even a slight edge to exploit. It’s hyper-competitive because what you’re selling is much more commoditized than in SaaS.

Another thing that’s true about ecom:

The. Data. Is. So. Messy.

Seriously, go sit down with an ecom founder for a day or two and you’ll see them in countless spreadsheets that are either in disarray yet someone continuously get used, or used once and discarded.

It’s like when you were a kid and your parents told you to clean your room because it was a mess, but you didn’t see the need to because YOU knew exactly where everything was amidst the chaos.

No? Just me?

Ok moving on…

There are obvious efficiencies for these brands to get by having LLMs clean and format their data. There is some industry knowledge needed to write the prompts to doo this, but if combined with integrations into common ecom tools, the pitch becomes a lot simpler especially if you lead with show-don’t-tell in your GTM.

Help these ecom founders sell more in less time and they’ll pay you forever.

🧠 Framework: C.R.I.S.P.

My guilty pleasure is frameworks where the word in the name represents what it actually helps you do, and the words each letter represents actually make sense.

The C.R.I.S.P. framework is one of those (and actually useful too) for helping you write better in a proven format.

As founders we need to write crisply. Our writing tells the story, sells people on us and our ideas, explains hard decisions, and generates belief from nothing.

Break your message down into these five sections, in succession:

• Context → Where you share the reasons behind what you’re doing, including but not limited to prior work or assumptions that it builds on. You’re just trying to quickly get folks on the same page.

• Requirements → What needs to be true, as a result of what you’re doing? What are the goals, and constraints on those goals? These can be tangible things or strategic principles.

• Insights → Start with your recommendation, and then spend this section backing it up with supporting evidence and learnings. What brought you to your conclusion / recommendation? Make the case. Note that this is not defining what the solution looks like.

• Solutions → Now bring the recommendation into something tangible. What’s the best way to implement it? What resources do you need to deliver it?

• Proof → Not everyone’s going to be sold, so use this section as a bonus where you outline the supporting evidence in more detail. Anticipate questions that will come up and address them here. It’s more than an appendix.

📈 Trend: Down Rounds Are Increasing

Here’s a narrative violation for you:

Down rounds are happening at the highest rate in at least a decade, according to Pitchbook’s data.

Yet all the headlines we’re seeing are about new AI startups raising big rounds at huge multiples…

Are we already far enough into the AI hype cycle to be seeing this many down rounds (more than the end of the ZIRP era, even)? Or is something else going on?

Jeffrey Fidelman correctly points out that the market has split completely in two.

Hot companies are hotter than ever, even pulling the median Series B valuation back up to ZIRP levels. There’s a clear recovery, driven by new AI companies.

At the same time, the “legacy” pre-AI, ZIRP-era companies that raised at equally huge multiples to what the AI companies are commanding now, largely haven’t been able to sustain the momentum and grow into their valuation.

Normally, these “legacy” startups would die off (so the % of overall rounds that are down rounds would be low), but something unique is happening here.

AI represents such a fundamental paradigm shift that many of these companies, rather than trudge forward with their original products and theses, have shifted gears and gone all-in on new or updated LLMs-centric products.

And, from their investors’ POV, they’d rather bet again (at a “discount”) on founders they already trust than take a risk on new people. Oddly these deals seem less risky than a down round traditionally would be.

💬 Quote: A Spiritual Journey

Ok, listen, the tweet I’m referencing this week is hyperbolic.

And I won’t take this moment to wax poetic about actual spiritual growth (the world needs more of it now than ever).

But you can view your own founder journey through whatever lenses you like, and it’s worth reflecting on it spiritually.

What have you learned as a founder that’s taught you to be a better man, or woman?

What lessons have you taken, from the roller coaster we all go on, that you can apply to your life more broadly?

We all make “founder” a central part of our identity, but the truth is it’s just one facet of life.

Spend 5 minutes today to step back from you-as-a-founder and think about you-as-a-person. If it’s been a while, I bet you’ll find that you’ve changed and grown quite a bit as a direct result on this journey you’re on.

Write it down. Come back to it later. Check in again in the future.

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