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XColumn: Startup Funding — Where We Are and Where We’re Going
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

Building a startup means going through cycle after cycle of uncertainty. One minute you’re on top of the world, raising venture capital and growing. And the next, you’re facing hard times.
I have experienced these cycles five times during my career. When I co-founded Hotwire, I went from the tech burst bubble of 2000 to the post 9/11 travel recession of 2001. I faced the Great Financial Crisis in 2008 when I was with Zillow. Most recently, with my company Pacaso, we’ve had to cope with the pandemic. Then there was a venture capital chill this year caused by inflation, rising mortgage rates and a general “risk-off” mentality in the market.
While these downturns were all difficult, I wouldn’t trade them. I learned from them. Comparing the financial crisis to the concerns we’re facing now, we can see similar threats. Inflation has run rampant throughout the country, and businesses are laying off workers and trying to cut costs as a recession looms.
There are also differences in how these issues develop and how we respond to them. The Fed has been aggressively raising interest rates, including by 0.75% just this week, and will continue to do so. They hope to stop a repeat of the early 2000s, and some predict it won’t be as bad as the recession in the 90s. The IPO window will remain closed until at least Q1 2023, and probably not reopen until Q2 2023.
How To Deal
As I said before, I’ve been through this time and time again. Along the way, I’ve found ways to lessen the blow. Here’s what I know now that I wish I knew then:
- Cut To Survive. Cut back on any non mission-critical expenses to ensure that you and your business survive. It’s notable that in this 2022 down cycle, startups have adjusted to belt-tightening very quickly thanks to Twitter and other social media amplifying advice from their peers and their investors; in past down cycles it took several quarters for most companies to adjust.
- Prioritize. Ruthlessly prioritize and adapt to the current reality. Don’t be afraid to cut projects. For example, Hotwire pivoted the business towards hotels in 2001 when travelers decided to stop flying, and Pacaso is focusing on certain markets and customer types in response to macroeconomic challenges.
- Don’t Be A Hero. When times are tough, don’t play the hero by being overly ambitious. You won’t get any credit for 20 extra points of revenue growth in 2022 anyway, so it’s okay to do 0-20% revenue growth. Again, cut to survive.
- Manage Your Board. Increase your communication with your board members so they understand what is happening in the company. Directors don’t like surprises. Founders are going to need their Board to be in their corner for advice, mentorship and potentially financial support from inside investors. So over-communicate early and often.
- Reconnect Employees To The Mission. If your employees are struggling or disheartened, reconnect them with the company's mission. Remind them why they joined the company in the first place, and that they can do some of their most important career-defining work during down cycles.
- Silver Linings. First, competition is lessened during down cycles because it is hard for startups to get funded. This benefits the more durable, better funded companies, as I saw at Expedia from 2001-2003 and at Zillow from 2008-2011. Second, customer behavior tends to change during recessions which enables new innovative businesses to emerge. For example, during the real estate recession of 2008-2011, real estate agents increased the proportion of their ad spend from newspapers to the internet which benefited Zillow greatly despite the housing recession.
- Always Be Raising. This one you’ve heard me say many times before. Raise now if you can, and raise as much as possible.
So, what happens next?
Assuming that nothing dramatic happens geopolitically, the venture investing dam will probably break in early 2023. In other words, it is going to be very difficult for startups to raise venture capital for the rest of 2022, and in early 2023 the funding market will improve. But that just means more checks will be written and more funding rounds will be done; it does not mean that valuations of these rounds will improve. On the contrary, venture rounds for the next six months are going to be at much lower valuations than founders have been used to, and they will include much more structure (i.e., downside protection for the investors) than in the past.
Also, the types of companies that get funded will change as compared with 2020-2022. Venture investors are now focusing on unit economics and profitability rather than growth. This will also be true in the IPO market where the first companies that go public when the IPO window reopens (likely in Q1 2023) will be well-known brands, must-own IPOs, with profitable durable businesses. The speculative earlier stage unprofitable companies that went public during the boom times of the last few years will not be able to go public until 2024 or beyond.
So, buckle up for the next few months and prep your company for the new world of venture investing in 2023. Just like all cycles, this one will end, but the conditions on the other side will require adjustment.
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
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LA Tech Week: Female Founders Provide Insights Into Their Startup Journeys
Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
Women remain a minority among startup founders. According to Pitchbook, even though women-led startups in the United States received a record $20.8 billion in funding during the first half of 2022, U.S. companies with one or more female founders received less than 20% of total venture funding in 2022. U.S. companies solely led by female founders received less than 2% of the total funding.
The panel, titled Female Founders: Planning, Pivoting, Profiting, was moderated by NYU law professor Shivani Honwad and featured Anjali Kundra, co-founder of bar inventory software Partender; Montré Moore, co-founder of the Black-owned beauty startup AMP Beauty LA; Mia Pokriefka, co-founder and CEO of the interactive social media tool Huxly; and Sunny Wu, founder and CEO of fashion company LE ORA.
The panelists shared their advice and insights on starting and growing a business as a woman. They all acknowledged feeling pressure to not appear weak among peers, especially as a female founder. But this added weight only causes more stress that may lead to burnout.
“The mental health aspect of being a founder should not be overshadowed,” said Kundra, who realized this during the early stages of building her company with her brother..
Growing up in Silicon Valley, Kundra was surrounded by the startup culture where, “everyone is crushing it!” But she said that no one really opened up about the challenges of starting your own company. .
“Once you grow up as a founder in that environment, it's pretty toxic,” Kundra said. “I felt like I really wanted to be open and be able to go to our investors and tell them about challenges because businesses go up and down, markets go up and down and no company is perfect.”
Honwad, who advocates for women’s rights, emphasized the value of aligning yourself with people with similar values in the tech ecosystem. “[Those people] can make your life better not just from an investment and money standpoint, but also a personal standpoint, because life happens,” she said.
Moore, who unexpectedly lost one of her co-founders at AMP Beauty, said that entrepreneurs “really have to learn how to adapt to [their] circumstances.”
“She was young, healthy, vibrant and we've been sorority sisters and friends over the past decade,” she said about her co-founder Phyllicia Phillips, who passed away in February. “So it was just one of those moments where you have to take a pause.”
Moore said this experience forced her to ask for help, which many founders hesitate to do. She encouraged the audience to try and share their issues out loud with their teams because there are always people who will offer help. When Moore shared her concerns with her investors, they jumped in to support her in ways she didn’t think was possible.
Kundra said that while it is important to have a support group and listen to mentors, it is very important for entrepreneurs to follow their own thinking and pick and choose what they want to implement within their strategy. “At the end of the day, you really have to own your own decisions,” she said.
Kundra also said that while it is easy to turn to your colleagues and competitors and do what they are doing, you shouldn’t always follow them because every business is different.
“When I was in the heat of it, I kind of became [a part of] this echo chamber and that was really challenging for us,” Kundra added, “but we were able to move beyond it and figure out what worked for us [as a company] and we're still on a journey. You're always going to be figuring it out, so just know you're not alone.”
- "If You Want to Make Money, Invest in Women." ›
- 'We Can’t Let Data Stop Us': Why Funding Inequity Isn't Deterring These Female Founders, VCs ›
- LA's Top VCs Are Watching These 10 Female Founders ›
Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
K-beauty Entrepreneur Alicia Yoon On Taking the Leap From Corporate Consultant to Starting Her Skincare Brand
Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
On this episode of Behind Her Empire, Peach & Lily founder and CEO Alicia Yoon discusses her journey from being a corporate consultant to establishing her own skincare brand as well as the necessity of having an airtight business model to become successful.
Throughout her life, Yoon suffered from severe eczema and struggled to find effective skincare in the United States that had meaningful results on her sensitive skin. During her high school years in South Korea, she turned to K-beauty brands for help and found the ingredients in those products more suitable to her skin.
In 2012, she founded leading Korean skincare website Peach & Lily as a way to help others take control of their skin problems. Her positive experience with K-beauty formulations inspired her to bring these products to the United States, products with ingredients that were effective but still foreign to Western beauty brands.
Before starting her business, Yoon worked in the corporate sector as a consultant for The Boston Consulting Group and Accenture. Once she realized she wanted to start a business in beauty, she left her role to attend esthetician school in South Korea and study K-beauty alongside trained chemists. She said that passion is absolutely necessary when it comes to starting a business.
“Your head and your heart have to feel 100% passionate and okay with it,” Yoon said. “If you don't love the thing that you're doing, it's really hard to keep waking up and really putting 100% into it and it does take 100% of you.”
Aside from having passion, Yoon believes that entrepreneurs need to take a step back before starting a business and make sure that their business model is completely ironed out so they can achieve long-term success. She said that founders should reevaluate their business models especially “if the cost of goods is just too high to maintain a profitable business.”
She learned the importance of the business model through her first startup, a Korean fashion import firm. Despite winning awards and selling out trunk shows, the business didn’t have much potential for growth, she said.
“There were issues with the business model. It would have been okay as a small cult business,” she said. “While those businesses are great, that's just not what I wanted. I really wanted to go all in with a business where I could really scale it.”
Yoon said that this experience and her time at Harvard Business School gave her the confidence to start Peach & Lily. Being in business school during the financial crisis opened the door to several networking opportunities and allowed her to have open conversations with other founders about their journeys, about what works and what doesn’t, and some of the challenges they had to overcome.
“I think the existential moments lead to more fuel, passion and action,” she said. “It does get hard because there are just going to be moments where you have to wear like 17 different hats.”
Because entrepreneurs play so many different roles in their business, Yoon thinks it can be difficult for them to see the impact that their company can have on its customers. Sometimes, this can make it hard to stay motivated.
Yoon to recharges herself by calling her support group: her friends and family whom she calls her “personal cheerleaders.” When she is having doubts about her work, she says they help remind her of her goals and why she started her business.
Customer reviews also help her stay motivated. Peach & Lily has an email listserv that allows customers to send reviews and comments to the company. Yoon feels the power of her work when she reads reviews that state how her products have changed her customers’ skins or how amazing her customers feel after using Peach & Lily products.
In a little more than ten years, Peach & Lily is on track to become the number five skincare brand at Ulta Beauty.
“I would literally turn on amped up music and I would get so emotional being like, wow, we're actually helping people,” Yoon said. “This is why I'm doing this.”
dot.LA Reporter Decerry Donato contributed to this post.
This podcast is produced by Behind Her Empire. The views and opinions expressed in the show are those of the speakers and do not necessarily reflect those of dot.LA or its newsroom.
Hear more of the Behind Her Empire podcast. Subscribe on Stitcher, Apple Podcasts, Spotify, iHeart Radioor wherever you get your podcasts.
- Behind Her Empire: Salt & Straw Founder Kim Malek On Overcoming The Fear of Starting a Business ›
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Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
LA Tech Week: Local Climate Investors Assess and Vet Green Startups
Samson Amore is a reporter for dot.LA. He holds a degree in journalism from Emerson College. Send tips or pitches to samsonamore@dot.la and find him on Twitter @Samsonamore.
In a region known for being a national trailblazer when it comes to climate policies, there’s no shortage of green energy startups in L.A. looking for funding. There’s also a plethora of investors and incubators, which means founders looking for cash flow should be extra specific about their value proposition when they pitch to cut through the noise. At least that was the message coming from the panelists at the UCLA Anderson School of Management on Tuesday.
LA Tech Week’s panel on the Future of Climate Tech: Advancements, Challenges, and Opportunities, hosted by UCLA’s business school, discussed a number of ongoing issues in the green tech industry, including how the 2024 presidential election could affect funding for climate initiatives.
David Jassby, associate director of UCLA Institute for Carbon Management, said he has been writing educational grants to fund graduate students’ research since Obama’s presidency. “In terms of the university, the research topics and the research dollars have not really changed, which is, to me, really encouraging,” Jassby said, noting that federal workers are eager to issue grants for cutting-edge climate research, regardless of political affiliation.
But there was more on the table than just climate politics. The panelists were particularly eager to advise the room, which was packed with students, founders and other investors, about how to get their green startups funded.
Zora Chung, chief financial officer of Rejoule, a battery diagnostics startup, said that she regularly speaks with engineers and has often noticed that they can get too bogged down in the science rather than focusing on pitching the product and its use case. To that end, she noted that it is crucial for startups to be clear about the value of the product and who it will serve. “Defining the value proposition isn't as simple as just seeing what it is. It actually needs to be very specific to who you think is your core customer service,” Chung said. Instead of comparing their startup to another, Chung believes it is more important for founders to focus on fundamentals like the goals of the service and its audience.
In climate tech and other science-heavy industries, making a clear pitch is even more crucial. Frank Bryan, founder of venture capital firm Halftone Investment Partners, said green tech startups have to “tell a business story.”
Bryan said that those who are deeply involved in the research and development aspects of the product often forget to think about who the customers are, why they might purchase the product and how much they’re willing to pay. By answering these questions in a pitch, entrepreneurs can show investors that their startup is in a phase poised for growth, that “you’re not just a chemical process, you've actually developed this into a real plan that is going to result in a financial return, which is ultimately what I'm trying to get at,” Bryan said.
Shomik Dutta, co-founder and managing partner of climate venture fund Overture VC, said that he prefers to “invest in painkillers rather than vitamins,” i.e. in startups that aim to solve climate issues rather than those who deceive the public by using eco-friendly marketing labels.
The issue of waste management and recycling particularly excited several of the panelists. Bryan is currently working with a company that recycles plastic waste from the air bag industry. “Everything that's made in the world has waste streams that are either emitted [by a] landfill or its heat. Those can be converted, they can be shredded and liquefied and cracked and into hydrogen, carbon dioxide or carbon,” Bryan said.
Although the U.S. is still grappling with disposal strategies of hazardous waste produced by industrial mining, many states are supportive of innovation in this area, Jassby said. According to the Environmental Protection Agency, the country generates hundreds of millions tons of waste every year; less than a third of this waste is recycled or composted. In other words, Jassby said, “recycling of waste is tremendous.”
Samson Amore is a reporter for dot.LA. He holds a degree in journalism from Emerson College. Send tips or pitches to samsonamore@dot.la and find him on Twitter @Samsonamore.