Three Things I learned After Evaluating 500 Companies in 2022
I had a goal of deploying $3M in 2022. I actually deployed $0 in 2022. It was very humbling to say the least. It was not for a lack of trying as we at DWP Capital had screened over 500 deals. If I was to summarize three things that I have learned it would be as follows:
The Abundance of Capital has Created an Abundance of Waste:
Every piece of trash in this picture represents a SaaS company that will lose steam and most likely die in 2023. Everyone and their mother wanted to play founder in the last two years and started companies with some capability but solved minor or small problems. Unfortunately, these tools will lose their novelty in a contracting market, and there will be a churn tsunami.
Network-Based Sourcing Has Gone by way of the Dodo Bird:
Fund investors are incentivized to raise more funds. To do that, they must mark their books with theoretical unrealized gains from other investors. Suppose the company’s valuation isn’t a good enough markup for them to market. In that case, they will push for different types of SAFE/convertible financings to delay pricing until the company grows into its valuation to avoid down rounds. My lesson is that no seed funds will introduce their portfolio to everyone.
“Investing is Fucking Hard”- Bill Gurley:
The quote above I took from the legendary Bill Gurley from a conference I attended in Miami earlier in the year. Being able to take an early-stage private company to liquidity becomes increasingly harder every day. Yet, finding the best opportunities and yielding the best returns takes grit, perseverance, and conviction.
After contemplating these lessons, I have honed my investment thesis further to find the right company profile. More on that later.