June Newsletter

Hello there,

It’s a busy time for the team at Baltic Ventures. They’re deciding who will take part in the debut accelerator. And I know from conversations I’ve had with founders that there are lots of startups eagerly awaiting the results!

In the meantime, let’s take a look at a topic that has raised a lot of debate lately: the current climate for early-stage startups raising investment.?

We’ve got lots more for you in this packed edition of the newsletter, too. So, read on!

Pre-seed investment in 2023: What you need to know

It’s no secret that tech investment has slowed down around the world in the past year as the economy has cooled and interest rates have risen.?

But while headlines like “UK investment falls off a cliff” can look terrifying, that’s largely in comparison to the FOMO-driven climate that prevailed not so long ago. Deals are still being done, even if investors are more selective than they used to be.

But what about at the pre-seed stage that Baltic Ventures focuses on? Pre-seed is notoriously fuzzy. While investment data providers like Crunchbase or Dealroom paint a decent picture of later-stage funding rounds, early-stage investments often fly under the radar.

A startup just getting off the ground often doesn’t see the need to announce a ￡150,000 friends-and-family round, for example. Even a large pre-seed round might not get revealed if the company wants to stay in stealth mode.?

(Startup comms secret: some startups add their previously unannounced pre-seed round to their seed round to make the total amount look bigger in the seed round press release. That makes sense from the perspective of grabbing attention, but it can end up distorting seed round data).

With data so thin on the ground, if you want to understand what’s happening at pre-seed, you have to go out there and ask the VCs and angels doing the investing.

My company, PreSeed Now, held a roundtable discussion for early-stage investors at the recent Climb23 conference in Leeds. We wanted to understand how they approached investing during these leaner times.

A few key takeaways:

• Investors are spoiled for choice because the standard of early-stage startups is higher than ever. This is partly because the level of education and community knowledge available to founders is way ahead of what was available just a few years ago.
• Many investors now want to see founders with traction and revenue, even at an early stage. For these investors, it’s about supporting entrepreneurs who have shown they can support themselves and proven they can make a business work with few resources
• This is okay for some startups to adjust to, but it makes life more difficult for ‘deep tech’ startups with a focus on R&D

Meanwhile, Sifted recently held their own discussion with pre-seed investors and came to some similar conclusions. They also offered some additional insights, like how rounds are taking longer to raise, but often raise more than they used to. This is to provide additional runway before the next round is required, as founders might have to wait longer to raise again in the current climate.

One thing that came up in the PreSeed Now roundtable is a concern that being too stringent with demands that very early stage founders generate revenue can lead to them being too underfunded to deliver truly world-changing startups that can grow at a pace needed to stave off competition.

This is a problem for the whole tech industry, rather than something any individual investor can fix on their own, but it’s worth keeping in mind. There’s a danger that less funding for early-stage startups today could lead to less impactful scaleups a few years from now.?

Startup to watch

SupplyWell takes a fresh approach to a problem we’ll all be familiar with from our youth, helping schools find the best supply teachers, teaching assistants, and cover supervisors.

The Liverpool-based startup launched in 2019, inspired by co-founder and CEO Michael Haverin’s experience as a teacher and senior leader in schools. The team is keen to stress that “rather than ‘techies’ working in education, we are teachers working with tech to promote a fairer future for schools, teachers and students.”

Now a team of 12, SupplyWell won Tech Nation’s Rising Stars competition in 2021 and has raised investment from MSIF (now River Capital) and angels including Carl Wong and David Woods, formerly of LivingLens and now co-founders of Baltic Ventures.

SupplyWell has already worked with over a third of the schools in the Liverpool city region, and will be expanding to serve Manchester and Cardiff in September.

“SupplyWell is bringing about positive change in education recruitment,” says Michael. “We want educators to be treated fairly, paid what they deserve and be able to teach happily. We want to help schools gain more control over their budgets and time so they are able to spend money on what really matters to their community.”

Words on everyone’s lips

“What if Elon was right?”: Elon Musk’s approach to Twitter since he bought the company last year has led to one investor slashing its valuation by two thirds.?

Yep, cutting the staff headcount to the bone and upsetting advertisers while failing to attract many customers for paid subscription products has left Twitter in an, er, challenging position.?

But some tech executives believe Musk’s bold moves will give them cover to make unpopular decisions by showing it’s possible for a company to continue to operate even after it upsets a big chunk of its stakeholders and cuts costs to the bone.

Just this month, Reddit has gone to war with its power users over changes to its API pricing. As some of the biggest communities on the platform shut themselves off from public access as a protest over the moves, CEO Steve Huffman stood his ground, insisting that the company was in the right.

Huffman told NBC News he was directly inspired by Elon Musk’s approach at Twitter.

But while cutting costs while ignoring the naysayers isn’t necessarily a bad move in economically challenging times, it remains to be seen what condition Twitter and Reddit will be in a year or two from now. Harsh decisions made today could have unpleasant consequences in the long run.

You need to know…

David Levine, Principal at Manchester Angels

Having moved on from life as a startup founder, David has rapidly carved out a name for himself as a dealmaker and the face of Manchester Angels.

Manchester Angels is a technology investment angel network created by a partnership between leading global tech advisory GP Bullhound and commercial property specialist Bruntwood.?

What David does:

David connects early-stage startups with angel investors, matching dealflow with investable startups from Manchester and beyond.

He is also an advisor and non-executive director for several technology startups and scaleups, supporting them through early growth and fund-raising journeys.

Startups he’s worked with include enterprise automation platform Versori; semiconductor software design business ChipFlow, and child labour index platform HACE.?

“I look for defensible tech in large markets, and coachable founders with ambition,” he tells us.

Scouse word of the month

Learn some Liverpool lingo - Made up: Super-happy.?

e.g.,: “I’m made up that Baltic Ventures is considering my startup for its accelerator”