Matt Golden VC

November 2022

VC Matt Golden on raising capital in a downmarket

Matt Golden recently appeared on the Retained Learnings podcast and shared his advice for founders who are operating during 2022’s market uncertainty.

Bianca Foti

Founder and Managing Partner of Golden Ventures, Matt Golden is no stranger to economic turbulence. In 2008, working as a VC, he successfully weathered the storm that came with the financial crisis and gained valuable experience that would serve him well throughout his career. At Golden Ventures, Matt and his team support early-stage founders in their journey and have enjoyed incredible success investing in companies such as Skip the Dishes, Wattpad, and even Float. 

In this interview with the Retained Learnings Podcast, Golden shares his advice for founders who are making sense of the recent market uncertainty. His core message? Double-down on core fundamentals that demonstrate a sustainable pathway to growth. Let’s jump in.

Q: Starting with an introduction, what are the size of the companies and the initial investments Golden Ventures typically makes?

A: Golden Ventures is investing out of its fourth core fund but we also have opportunity funds. We’ve been at this since 2011 and have always stayed true to our mission of supporting transformative companies at seed stage. We’re comprehensive in terms of pre-seed, seed, or seed plus, as well as the sectors we invest in. We mainly invest in Canada, the San Francisco Bay Area, Los Angeles, New York, and Boston – but we’re open to other areas too. 

A standard investment would be a seed stage company investing anywhere from $500K to $2.5M. We typically lead but are open to alternatives. Oftentimes, we co-invest with other seed funds across North America at the seed stage. To give you a sense of our range, we’ve invested in everything from quantum computing to non-permanent tattoos. 

Q: The breadth of Golden’s investing platform is certainly unique. What do you look for when you make a seed stage investment? 

A: In general, we look at a potential investment as if it were a three-legged stool, with each helping to support the whole. We look at the team and its composition, market potential, and then the traction and proof points of the business. I would say the most important leg is the team and its composition. A team’s ability to be nimble, iterate on the product, course correct, and attract talent can not be overstated. These are the pieces that help to build a successful enterprise. Without a strong foundational team, traction or early signs of product market fit don’t really matter.

We study our deal sourcing and always remain focused on connecting with potential founders, which comes from many years of network building. We have different deal sources – our existing founder network, existing executive networks, service providers we’ve worked with like lawyers, and inbound. People typically seek us out when they’re at the seed stage. Being ex-co-founders of companies ourselves, we work with founders in a way that we would have wanted back then.

Q: As for metrics, what matters most at the seed stage? And similarly, what are the metrics that don’t matter? 

A: It really depends on the stage of seeding. If it’s pre-seed, you’re likely to have zero metrics. There should be some proof points around customer traction, but you’re not looking for a huge run state at seed. By seed plus, however, you’re starting to look at the number of customers, if there’s a path to expansion, and whether or not they’re paying for it. You begin looking at cohorts, retention cohorts, sales processes, and if there’s an actual pipeline. Metrics become more meaningful as you progress through the stages. Because we invest at seed, we’re constantly helping founders prepare for Series A fundraises.

Q: Once you’ve invested in a business, how do you work with the finance team? How does planning for Series A funding happen? 

A: A lot of seed companies do not have a fully formed finance function. At this stage, finance is focused on the operating plan and if the forecast can be actualized. We’ll work with founders or the Director of Finance to prepare and review the operating plan and make sure it’s consistent with the narration of the opportunity that’s being presented to a Series A fund. 

In later stages (late Stage A or B), when the finance function is bigger, this is when the business model and financials become more critical. How believable is the plan? Are they properly accounting for everything? Do they have the right systems and processes? 

At that stage, the finance function becomes more integrated into the raised process. It’s not unusual for a Director or VP of Finance to be involved in the raise, both in the process and speaking to potential investors. 

Q: Do you have any suggestions for those who may be the first finance hire or a finance executive in an early stage business? What are key things that you’ve seen go right or wrong in the past? 

A: Things can go terribly wrong if you’re not in tune with your finance function early on. At the seed stage, it’s critical to be financially fluent. We often connect founders who are not financially fluent with an outsourced company to help build an operating plan with the proper processes and systems. We’ve had situations at seed where we’re raising a Series A and realize that the way founders account for things is not particularly standard. If that gets revealed at the wrong time in a diligence process, it can create deal risks. 

Q: You mentioned that being diligent in the early stages can save you from unexpected pitfalls that might put future financing at risk. In a market downturn like today, how does this affect the expectations you have for the companies you’re invested in? 

A: I think the whole market is taking a bit of a pause, particularly coming out of the pandemic. Being on the other side now, we’re looking into a potential recessionary market. From a fundraising perspective, everyone is recalibrating. I’ve been through a couple cycles, but those founders who entered the market post-2008 have never really experienced a meaningful economic downturn. 

Interestingly enough, many founders at the seed stage who raised some capital felt their Series A would get preempted right away. The milestones required to raise the next layer of capital at all stages have shifted – the goalposts have moved to the right. 

What do you need to achieve to raise a Series A, B, C now? Whatever it was before, you’ll need to have achieved a lot more to raise that next round at the valuations that you would normally expect at those rounds. There’s a combination of needing to accomplish more and there’s a resetting of valuation as a multiple of revenue. It’s a double whammy from that perspective.

What can companies do to prepare? At the seed stage, for example, companies who’ve only raised $1.5M thinking that on that money, they don’t want to overdilute themselves to get to the next stage of capital. Previously, they only needed to hit two or three customers and demonstrate $20K MRR to get preempted at a Series. Now, they may need over $100K MRR and eight customers. So what does this mean? It means you’re likely undercapitalized to achieve those milestones that have shifted to the right. 

A number of those companies are taking additional capital on the same terms, as an acknowledgement that the market has changed drastically. It’s possible the valuation they raised last year in today’s market is high, relative to what they’ve accomplished and so they’ll take additional capital. It’s happening at seed, A and, B – and I think it’s the smart thing to do. 

Q: If a company is facing a down round, what does that look like? Do you have any advice if a business is going through that? How do they mitigate it and come out the other side?

A: It is possible to manage it down and capitalize yourself, resetting the valuation. It can create what we call an upside-down cap table where founders and employees don’t own as much as they likely should to keep everyone incentivized and building. If you can’t build that incentive into a cap table, then it’s upside down. 

I think investors need to participate in that dilution. Even existing investors who may have various terms in financing contracts that protect them from dilution, often need to negotiate and make a case that balance needs to remain on the cap table. It’s really about working with your existing investor group to ensure you can come out the other side with a cap table that keeps the founders and the team committed to building something special and transformational. 

Communication, transparency, and effectively presenting to the team and investor base is essential. It’s a really big challenge for finance to figure out exactly how to construct that round in a way that’s fair to all parties. For leadership and the CEO, it’s also a big challenge to effectively communicate that across all the constituents on the cap table. 

Q: It feels like we’re nearing the end of growth at all costs. How do you suggest management teams find the line and what is the balance? How would you advise companies to find that line, whether it’s a Series A or Series C company, as an example? 

A:  For downstream financing, in revisiting the metrics that are necessary to raise that next layer of capital, there’s more focus on the long-term health of a company’s unit economics, as opposed to believing that growth will solve all problems. Investors are wanting to see evidence that you’ll build a company and lose money until you can bring it to a certain scale, which can then lead to positive unit economics. That has worked for many years in venture capitalism and I don’t think that’s going away. What’s new is validating and being thoughtful about the unit economics earlier.

Validating unit economics of the high-growth story is going to be increasingly important for businesses. There’s going to be a lot more focus on being a healthy business and how quickly you can become a healthy business. The trade-off is if you focus on unit economics, it often impacts growth. If you want to grow 3x or 4x next year, but also improve unit economics, it’s likely you won’t be able to grow at that pace. 

The market is starting to value that middle ground, but it’s really tricky to find out the tradeoff because growth still solves a lot of problems for VCs. You’re not going to win at raising capital by showing that you’re profitable without growth and vice-versa.

Q: What would that look like when a Series A company is thinking about a Series B? What does that testing process look like before you kick off a full fundraising round? 

A: We’re in constant communication with all the top funds in North America at various stages. When a company is thinking about its next round, we’re working closely with them to have conversations with who we consider to be potential funders of the company downstream at the appropriate stage for what they’re trying to raise. Having those conversations early and building out the operating plan allows us to determine the level of growth they are looking for. It allows for the calibration of where they need to be in order to hit those milestones. 

Q: Where can our readers find out more about you and Golden Ventures? 

A:  The best way to learn about us is through our company’s extensive FAQ. We think that funds should be increasingly transparent about who they invest in, what their sweet spot is, how they work with founders, and the types of deals they’ve done. Even going so far as to talk about DEI, the types of companies they’ve funded and the diversity of the founders they work with. We report on all of that and urge you to check it out.


About The Author

Bianca Foti is the founder at Next Edition and a spirited writer for businesses, with nearly a decade of experience in the financial services industry.