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A Seed Funding Pool Party with the VC Minute Podcast Host

Key Takeaways

How is raising capital for a startup like having a pool party? Rich Maloy of SpringTime Ventures (and host of the VC Minute podcast) swings by Off the Books to make a splash! Watch now.

Season 4, Episode 5: Seed Funding Pool Party with the VC Minute Podcast Host | Transcript

Steve: Hello and welcome to Off the Books where we surf the unchartered waters of accounting, finance, risk, and wherever else the waves take us. This episode is brought to you by Workiva, the risk, reporting, ESG, and compliance platform that simplifies your complex work, like putting together a prospectus for an IPO so going public doesn't feel like going haywire. Check it out at My name is Steve Soter, accounting enthusiast and Diet Coke aficionado. I'm looking forward to debiting a great conversation, and I'm so happy to have you with us. I'm also very happy to have Catherine Tsai joining us. Catherine, can you please tell the fine folks who you are?

Catherine: I'm not an accountant or Diet Coke aficionado, but I like asking questions and learning new things, so I'm here to learn.

Steve: Well, Catherine, what do you want to learn about today?

Catherine: It's been a while since we've talked about companies going public, SPACS, capital markets—seems like a lot has changed since the last time we talked about all of those.

Steve: A lot certainly has changed, I think. In 2022, we've seen IPOs and SPACs basically dry up. There's credit crunches, higher debt costs for a lot of privately held companies. And while we see that going on today, certainly that is perhaps having an upstream impact on the beginning of a company's life, including startups and venture capitals and what it's like for them in this economic environment right now.

Catherine: And our guest this week should have some insights. He's a managing partner at SpringTime Ventures and works with early stage startups. Let's meet Rich Maloy.

Rich: Thanks, Steve. Thanks, Catherine. Nice to be here.

Catherine: Thanks for being here. What's your elevator pitch for SpringTime Ventures?

Rich: SpringTime is a seed stage fund. We invest in tech startups all across the country. Though we're based in Colorado, we invest nationally, and we have four focus areas that we've dialed in to for our second fund. And so we invest in fintech and ensure tech, health care, logistics and supply chain, and marketplaces. We're a very people-focused fund. We're a small fund. There's three of us full-time, two managing partners and a number of operating partners that are part-time. When we bring a people-focused approach that founders very much appreciate to the work that we do.

Catherine: You also have a podcast that is something that caught my attention.

Rich: I'm embarrassed that I didn't bring it up, but one of the things that we we love to do is help founders fundraise. And we see ourselves as being able to shed some light on the unnecessarily opaque world of seed stage financing. And one of the ways that we do this is I have a podcast called the VC Minute, quick advice to help startup founders fundraise better. Each episode is about two minutes long. It's in digestible, short, digestible formats so that you can listen to it, take in that information and put it on pause, or move on to the next one and take it all in it at the pace that you want.

Catherine: I know you're pretty active in the startup community, and you had put together a presentation in May about the mergers and acquisitions market slowing down, and at the time it looked like maybe seed investing wouldn't slow down quite as much as Series B funding and beyond, but how does the fundraising environment look now?

Rich: Yeah, I think that what I was expecting to happen has happened. So the report that I put together in May I called the Pig in the Pipe, and the Pig in the Pipe was that the door to the exits was shut, and it was shut in Q2. It was shut in Q3 as well. And it looks like that's heading in that direction for Q4. We'll see about that. But the way that that ripples through the whole market is it takes time for it to ripple through the whole market, and so late stage got hit first. And they got hit early in Q1 and then hit stronger in Q2, and the Q3 numbers just came out. And late stage, late stage venture capital by the way, is really, really suffering. So funds that startups that took on a lot of money from a Series D or beyond investors, at a Series D or beyond, with the anticipation that they would be able to capitalize on an exit, are having to pull back and figure out how they can extend their runway so that they don't have to raise more money so they can build their business until the the door to the exits opens again. So the ripples that it has through the venture ecosystem is very interesting. And so as the late stage backs up, then Series B comes in hits that next. And so then the Series B funds to start to slow down, slow their roll, and then the Series A starts to slow their roll. But what was interesting in May, and continues to and has held up until last quarter, was that the seed market didn't feel a lot of those effects because it was so far from the downstream of the door being shut off the Pig in the Pipe. And only now is that starting to come to roost. And it's happening for a few different reasons. But right now the seed market is starting to experience its own slowdown. And so it's finally hitting the earliest stages of founders and entrepreneurship.

Steve: So, Rich, let me try to repeat what you said for our listeners who might not be super familiar with this. What we're talking about, and the initial slowdown was for Series D funding meaning that this is a company with a little bit of maturity. They've been through multiple rounds of financing or I guess capital raising. It's a better way to say it. They now need to go get new capital, but that new capital is harder to find, which then suddenly means, "Ok, I can't find the capital that I need. I've only got so much cash. How do I kind of preserve my runway?" And what you're saying is that over time that has caused that to back up all the way to initial companies looking for that initial seed funding. That is getting harder to find because you have Series D, C, B, all sort of kind of waiting in line, as it were. I'm probably not saying that quite right, but have I described that correctly?

Rich: Yeah, exactly. Everybody's waiting. I mean, a venture fund only makes money when it can sell all or a piece of its ownership in a company. And the later you are, the less your tolerance is for risk. But the earlier you are, you have a higher tolerance for risk. And what has happened is exactly that, is that the backlog of D has then slowed down C which slowed down B which slowed down series A, and seed comes before the series A because A was the first letter in the alphabet. You couldn't go before before that. So it got called the seed phase back in 2010 or something like that. So now that's really where we're at.

Catherine: What sorts of effects are you seeing at SpringTime Ventures?

Rich: The biggest thing that we're seeing is the lengthening of the seed phase. And by that I mean that it used to be that if you go back 10 years, a company may raise a seed round or friends and family round, and then they would go on and raise a Series A. And it used to be that you could hit $1 million of annual revenue and go out and raise a Series A, no problem. And that was true even two years ago: a million ARR (annual recurring revenue), even a year ago, go raise your Series A. But now Series A has moved the bar, so they've slowed down as well, and they move the goalposts. So now you need to raise $2 million, or so you need $2 million of annual recurring revenue in order for most Series A funds to take a look at you. So now these companies that are in the seed phase, which is where SpringTime invests, they are either hitting their numbers or they're not—that's a separate conversation, right. But even if you're hitting your numbers, the door to the Series A is further down the road. And so now you need to come back to the market and raise some more capital to get your business up to that next level so you can level up to the series A level. And so we're seeing startups that raise a pre-seed, a seed, and a seed two, maybe a seed extension. You might raise four times in the seed market before you have your breakout moment and hit the Series A. So we're seeing a lot of companies come back to market to raise right now.

Steve: And does that put pressure on companies like SpringTime Venture where what we used to think of as seed funding was maybe a little bit smaller—and I realize every company is going to be a little bit different—but now when we think about seed, given that that might happen, you know, four times potentially, we're actually going to be in this a little bit more money than we otherwise would in order for them to be able to hit that, you know, again, that $2 million annual recurring revenue so that they can actually go out and seed A and then, you know, the venture capital can kind of step out.

Rich: Yeah, one of the conversations that we have internally is if we don't invest now, will this blow past us or is this the right time or are they going to come back around? And that is purely a judgment call. Sometimes the numbers speak to it, sometimes they don't.

Steve: What kind of conversations are CFOs having at these companies as they are trying to manage having enough capital to grow and to obviously get established and to generate that revenue, but being super careful about only investing in the right places containing expenses? I mean, that's got to be a really, really tough balancing act, made even more difficult by this phenomenon that you're describing.

Rich: Yeah, definitely. I think that the conversation they should be having, is they should be looking at how can they match their runway—their burn rate of how much time they have left before they run out of money is what the runway is—how can they match the runway to what the fundraising cycles look like right now? And it's taking longer to raise money across all stages. And so a startup in 2021 might have gone out to market and raised in a month, and now it might take six months to raise. And so now you have to look at and say, well, we're going to run out of money in six months, we have to start fundraising right now. And the markets are terrible for fundraising right now, so how do we extend our runway so that we can we can last for a year and then we could start raising in six months when hopefully market conditions are better. That's really the conversations they should be having. They should also be looking at that from two sides, right. Is it, you know, our sales up in can we continue to invest in sales? And then also, you know, what are our expenses? The one thing that has changed dramatically in the last year is paying for growth. And so what is the old way of thinking from a year ago, if you will, being old? If that's considered old, the old way of thinking was go capture market share. It doesn't matter what it cost you right now, get out ahead of your competitors. Spend and grow and spend and grow. Worry about the bottom line later because there's more capital coming. Ok, now there's not more capital coming. So now what do we do? Well, now you can't pay for growth. And so now you need to have positive, scalable unit economics, and that should be on the top. That should be number one priority for all CEOs, CFOs—how do we show that we have positive unit economics, first and foremost, and then how can we make those unit economics scalable?

Steve: We're losing money, but we'll make it up in volume.

Rich: Exactly. That was the attitude for years. I mean, not just 2021, but for, I would say, you know, maybe the last four or five years, maybe for three or four years.

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Steve: So, Rich, for all of our entrepreneur listeners, what does it take to find venture capital or seed stage financing? You know, what does it take today? What do you have to show and demonstrate to somebody like yourself to help you think, hey, this is a really compelling opportunity for us?

Rich: Yeah, it depends for every investor and for every stage. And so we don't invest in pre-seed. People that just have an idea and want to get it out there. We are investing primarily in businesses that have revenue. And so then they can show that they have found a true pain point and that they're serving that pain point very directly with their business, that people are giving them money to solve their problem. Let's remember that the point of a startup is not to raise venture capital. The point of a startup is to create something of value and to get your customers to exchange money for your value. And so show that you have have created that item of value, that unit of value, and that you can continue to scale out and repeat that. The one piece that is often overlooked in seed stage financing, and something I love to talk about through the VC Minute, is the psychology of fundraising, because no single investor would take a whole round of the whole seed round. And so what you get is that you have anywhere from 3 to 12 angels, VCs, strategic investors. I mean, I've seen big, big seed raises. And while that's great that you then get that expertise and you get access to all of those networks and more networks, the hard part is getting there because nobody wants to be the first one in the pool, right? So my cornerstone analogy for the VC Minute is the pool party. You know, raising a funding round is like throwing a pool party. Nobody wants to be the first one in the pool because if I jump in the pool first and nobody else jumps in, now I'm soaking wet and I look like an idiot. And so everybody just kind of stands around like, "Hey, Catherine, are going to get in the pool? I'll get in the pool if you get in the pool." And that is legitimately what is going on behind the scenes. And so for a founder, it's one thing to build a business, and if you have the numbers, it makes it a whole lot easier so that you can show to investors that you're on the right path and you've got the right track. But what also helps is being able to fundraise and being able to pull that pool party together and let other investors know that there are other investors around the table like, "Well, we've got you know, we've got $1 million committed and we've got another million dollar soft circled. And so we think we'll be able to pull in $2 million on this raise." So now I'm thinking, as an investor, I'm thinking, am I going to get my allocation? So the psychology for fundraising is just as important as the business side.

Catherine: It's a great analogy. It's like the numbers are your pool floaties to help you stay afloat. So some people come into the pool with you.

Rich: Exactly, also your cocktails that you're passing around to get everybody, you know, loosen up a little bit like, okay, this is going to be a good time. Don't worry about it.

Catherine: So Rich, can you tell us what you're working on right now?

Rich: Yeah, I'm preparing the follow on to the Pig in the Pipe report because the door to exits is still shut, and that is still having effects through the market. And it has finally hit the seed stage market. And so there has been a noticeable slowdown for seed funds and seed investing. And this is what you would expect a fund, a seed fund to do. So you've got two different levers, at all stages you have two different levers that you can pull on to manage how you're investing. And one is the number of investments that you make, and the other is the pace of the investments that you that you do. And so when markets are raging and markets are hot, you want to be in as many companies as possible and you want to deploy your capital as fast as possible. And so you have, you know, maybe you're investing in 35 companies in 18 months or 12 months or something like that. But now that the markets have cooled off, we're seeing the numbers are already bearing this out, that investors are pulling back, and they're either investing in fewer companies or they're investing slower, most likely both. And so it's making it harder to fundraise right now. And then you add in all of the startups that are coming back that raised in 2021, they're all coming back to market to raise now because it's been 15 months since they raised their 2021 elevated round. So they're all trying to fundraise on last year's terms without the growth in the numbers to back it. And so the backlog right now is pretty significant in the seed market. And if we forecast this out a little bit, you know, a few things happen. One, companies fail. The second thing is that the price of what somebody downstream is willing to pay goes down, or the price that a company is willing to take for an exit offer goes down as well. And exits in cool markets and normal markets, acquirers are very price sensitive, and private equity, similarly, they ultimately are either trying to get cash out of the business or they're trying to sell the business. And so they're also very price sensitive. And so as interest rates go up, price sensitivity goes up with that as well for private equity acquisitions. And so what ultimately will have to happen is that startups and the funds that sit on their boards are going to have to reach a point where they say we're willing to take less to sell this company just so that we can get it off of our books and we can move it and get it to the next level. And so as that grinds out in a very painful process over the next two or three quarters, that will eventually open things up for the rest of market. So it will, you know, continue to be turbulent, I think, for at least another two quarters.

Catherine: Buckle up. I feel like our listeners probably have more questions for you too. So if there are enough questions, email us at and maybe we can bring Rich back at some point. But in the meantime, we can get to our closing question of the day. So it's getting a little bit chillier now. And I know you mentioned VC Minute and the pool party analogy. So as the weather gets cooler, how do you get people to jump in the pool? You can choose to answer that metaphorically, literally, however you want.

Rich: I think that, you know, you have to find you have to find a great investor that is willing to lock arms with you and jump in the pool with you. And what I talk about on the VC Minute a lot is about the process that you need to go through in order to just keep scooting people closer and closer and closer to the edge of the pool and how you use your system, a CRM of some sort, in order to move through other investor systems. And so you constantly have to be top of mind with investors because new stuff is coming in constantly. We're always chasing the new shiny object that comes in. And so staying top of mind means sending regular updates. But ultimately, let's come back to, again, the point of a business. The point of the business is to create something of value, create that item of value, make that value even more sticky, go out and sell that, and drive those numbers. And then you can have a hot pool party because you've got the numbers and you've got the people.

Catherine: Steve, do you have an answer too?

Steve: I have a literal answer. As the father of children, I can tell you there's three approaches, actually. The first is get them going so fast enough that they don't even realize the water is cold, so they just go straight in. If that doesn't work, then you get like a ball or something and be like, "Hey, go catch the ball." And they get excited and then maybe they jump in. The third you just give them the old nudge, and that's how you get them in, which maybe there's some parallels to that and seed stage funding. I don't know, Rich, but that's how I'd answer the question.

Rich: I like the extension of the analogy and the way you push people in the pool, whether it's you pull them in with the ball or you push them in from behind is with a deadline. Without a deadline, there's no incentive to take action.

Catherine: That's right. I appreciate your answers and thanks for being on the show today.

Rich: Awesome. Thanks for inviting me. This was fun. I appreciate the conversation.

Catherine: Thank you, dear listener, for surfing along with us. I'm Catherine Tsai. That was Steve Soter, and this has been Off the Books presented by Workiva. Please subscribe. Leave a review. Tell your buddies if you liked the show, and feel free to drop us a line at to tell us what you'd like to hear us discuss on upcoming episodes. Surf's up and we'll see you on the next wave.



22 minutes


Steve Soter, Catherine Tsai, Rich Maloy

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