Why trying to time the market in your next fundraising may be a mistake

Trying to time the market for a fundraising round is a tempting strategy for many companies looking to maximize their valuation and attract suitable investors.

It is incredibly difficult to predict market trends with any degree of accuracy. In 2021, valuations surged to unprecedented levels based on factors that are difficult to quantify. However, falls in valuations can be equally unpredictable, as experienced in 2022. Many companies cut back on spending to increase their cash runway, highlighting the importance of conserving cash in uncertain times.

Many companies are delaying funding rounds in the hope that valuations will improve. Private equity funds have capital to deploy now, and companies that approach the market now may face less competition. To address valuation concerns, structured transactions can limit dilution to existing shareholders. Private equity deal pipelines are increasing, and we expect an influx of companies seeking third-party funding this year.

Trying to time the market for a fundraising round based on current valuation trends can be a risky and potentially damaging strategy. Instead, companies should focus on building a sustainable business model and ensure they have healthy cash reserves rather than trying to predict market trends. By doing so, they will be better positioned to weather market turbulence and emerge stronger in the long run.