UK startups are paring back growth-at-all-costs business plans and mapping out firmer routes to profitability as recessionary fears cause investors to pull back from higher risk bets, a top venture capital chief said today.
Julia Hawkins, who heads up venture giant PhoenixCourt’s LocalGlobe and Latitude funds, which focus on pre-seed and early stage firms, said economic uncertainty had caused investors to shift their focus away from the breakneck growth that marked the venture landscape last year.
“The companies that we are working with that are going to raise their series As – those founders are communicating much more robust plans in terms of how they’re going to grow,” Hawkins told City A.M.
“I think investors are looking for more sustainable growth as opposed to growth-at-all-costs.”
PhoenixCourt’s portfolio of firms have raised $9.2bn in the last 12 months but VC funding has begun to dry up in the second quarter of the year as rising interest rates choke off the cheap cash that fuelled an investment boom last year.
The market had seen a “correction for the better”, Hawkins said, as valuations fall from frothy highs in 2021. The downturn has swept up some of Europe’s most high profile tech firms, including Swedish payments giant Klarna which saw its valuation plummet 85 per cent from $45.6bn to
VCs have also been warning their portfolio firms to batten down the hatches and extend their cash runways as further funding gets harder to come by.
“We sent a memo to our founders back in February, before the outbreak of the Ukraine war and before the sell offs in the public markets, and what we said then was to try to ensure they have runway or cash in the bank until Christmas 2023,” Hawkins added.
“So we highlighted that valuations would come under pressure and it would take longer to raise rounds.”
The behemoths of the venture world have been sounding similar klaxons this year as rising interest rates restrict access to funding globally.
In a presentation to firms in May, Silicon Valley giant Sequoia Capital told founders that as the macroeconomic environment deteriorated, investors were “de-prioritizing and paying up less for growth.”
Hawkins said that opportunities remain for Phoenix Court in the months ahead however, after the firm raised $500m to deploy across its funds LocalGlobe, Latitude, and new vehicles Solar and Basecamp.