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Raising a Series A in a market of mixed messages

The market for tech companies has shifted, as shown by a weak IPO market, a focus on profitability, and pivots galore. Yet, despite the market’s ongoing re-correction, venture capital is a booming asset class. Last year, per CB Insights data, venture investment reached $621 billion, which is up 111% from 2020 levels. This year, while valuations are seeing some pullbacks, investors say expensive term sheets show that there’s still hope for founders.

Indeed, it’s a market of mixed messages. For startups graduating past the seed stage and thinking about landing that coveted Series A, what’s the best way to navigate these times? Stellation Capital founder Peter Boyce II joined us at TechCrunch Early Stage to answer this question, along with many more, in his Series A-focused chat.

Boyce, who left General Catalyst to raise his own $40 million fund, spoke from the perspective of a solo GP who helps portfolio companies design their next fundraise. We talked about a rare power-shift dynamic for founders to employ and why 20% fluctuations in your valuation don’t matter when you’re young.

We’re still in founder-friendly market, kind of

A not-so-common practice

When a founder raises a Series A round, it’s often the first time that they’re establishing a board in a formal way. As a result, Boyce recommends founders perform reverse due diligence and interview not just the firm, but the person that will be seated on your board for potentially over a decade to come. It’s important to get right.

The investor said that founders should consider a number of factors when choosing a board member, such as work style, expertise in a specific domain, access to follow-on capital, and broader resources. Interview portfolio companies, look for mutual connections, and, better yet, don’t be subtle about your investigation. Reverse due diligence, Boyce said, can show an investor that you’re “super serious” about your business.

“I’m actually really quite surprised that this isn’t a kind of more common practice,” he said. “The reason I love it for founders is that it totally changes the power dynamic once you’ve started doing your own homework on the investor … like all of a sudden you put them in a totally different interface and relationship with you.”