Over the past week, I’ve analyzed the nearly 500 responses from founders who responded to the 2022 Market Conditions Survey. Thank you to all who participated and those who attended last week’s Office Hours to review them.
The survey results review the trends in the public market, in founders’ minds, and the private market.
Top 10 Insights from the 2022 Startup Sentiment Survey
- The typical founder feels 6.0 on a 10.0 scale, just slightly better than neutral about the market. During the live Office Hours, the audience was more negative, recording an average of 4.0.
- Software & Infrastructure companies are more optimistic than web3 and consumer founders, who average 4.8. Perhaps, the strength of public market SaaS & IaaS companies supports this optimistic slant.
- 30% of respondents have observed longer sales cycles. Companies selling to mid-market and enterprise see this pattern with about twice the frequency of those selling to small and very small businesses. Longer sales cycles may be a leading indicator of slowing demand.
- 45% expect slower ARR growth this year and on average are reducing their ARR (annual recurring revenue plan) by 31%.
- 89% of founders expect fundraising valuations to decline, about 11%, which is meaningfully less than the 60-70% correction in the public markets.
- 42% have changed their fundraising plans, roughly split in half between accelerating and delaying their timing.
- More than a third of founders polled are considering selling the company, raising venture debt, or raising an inside round.
- About 20% of those polled will conduct a layoff, and on average will reduce headcount by 20%.
- 50% of companies won’t change compensation this year, 33% will increase it, and 17% will reduce it.
- There’s no correlation between the amount of money a startup has raised and its runway. Irrespective of total money raised, most businesses’ have 18 months until their zero-cash date.
To summarize, the data highlights that we’re living in a market in flux. Founders feel less optimistic and acting on it by reducing burn, trimming growth expectations, and lengthening runway. Many boards recommend startups operate with a plan that provides the business 24 months’ cash because the last two major recessions that resembled this one (1940s & 1980s) lasted between 12 to 18 months.
The private market data, which shows a decline in round volumes, but stable valuations and round sizes, suggests top companies are able to command similar valuations. A word of caution: selection bias misrepresents true market conditions. Companies suffering through hard times won’t raise for a while and their numbers aren’t included in the May figures.
Thanks to everyone who participated in the survey and attended the Office Hours. The video of Friday’s session will be up soon.