Link to original article: Every startup wants an extension round, but there aren’t enough to go around

As venture funding continues to slow, founders are scrambling to extend their runways, regardless of how much cash they already have in the bank. But the startups that need the cash infusions the most are running into the most trouble.

Last week, I wrote about the current state of bridge financing after multiple pre-seed investors started getting emails from companies — some in a state of desperation — to get more time in the form of cash. To the investors, it seemed like everyone was struggling. But while founders are reporting that it is more difficult to raise across the board, it seems significantly harder for some than others.

Wa’il Ashshowwaf, co-founder and CEO of Reyets, a social justice app that helps people discover what their rights are in different situations, thinks it will be more difficult for founders like himself who are targeting more impact-driven narratives. He told TechCrunch that his company had multiple verbal commitments for bridge financing this year — before a proper round next year — but all investors pulled out just weeks before checks were supposed to be written.

“Investors are responding to [startups] that are more sure bets than the ones that are early and unproven,” Ashshowwaf said. “For us in the impact space, the line between business and benefit corp or a social venture makes [the investment opportunity] a lot harder for them to digest rather than, say, manufacturing a widget.”

It also appears VCs are focused on backing startups that already have meaningful revenue numbers and customer bases. David Astoria, founder and CEO at broadcast media startup Pranos, attributes most of his company’s recent bridge financing success to its existing traction. He thinks the fact that Pranos already had cash in the bank was a big positive to its investors.

“I think the roadblock with these bridge financing investors is you have to prove you are really building the bridge,” Astoria said. He added that a banker recently told him, “we can help you build a bridge, but we aren’t trying to help you build a pier.”

While that is fine for companies that have already launched products or amassed customers, startups just getting off the ground are left adrift. The path ahead is also murky for companies that are looking to bridge pre-seed and seed rounds, where not having any revenue isn’t necessarily a red flag.

The founder of a data privacy startup in Germany told TechCrunch they are facing such an issue and hearing similar stories from their peers. The founder, who asked not to be named as their company is currently raising, said when they started to discuss bridge financing with existing investors, the conversations went smoothly and most sought to fulfill their pro rata rights or more. However, they found that outside investors weren’t interested in looking at a company without a specific set of metrics.

“They don’t even take an individual look at your business, but rather, [they say] this is what we expect from all companies; this is what we are looking for the next six months,” the founder said. “They are making it easier for themselves to say no, because they put everyone in the same bucket.”

Some founders may be struggling because they are trying to raise money while dragging about an outdated and inflated valuation from last year, Ivan Nikkhoo, a managing partner at Navigate Ventures, which specializes in extension capital, told TechCrunch. He said he’s seen a lot of inbound interest from companies that raised at ridiculous heights last year, and he has a hard time taking them seriously.

One issue that is likely impacting all founders looking to raise financing right now, he said, is that while funding is slowing, seemingly everyone has been advised to raise financing, and most startups are currently in-market.

“In the past four to five months, everyone and their mothers has been looking for an extension round,” Nikkhoo said.

Elian Savodivker, the founder of experience crowdfunding site Nabü, and adviser to a number of LatinX founders, agreed. He said most of the founders he works with are out raising regardless of their current financial status. “Everyone is back out there. They are getting after a bridge round almost out of fear; this idea that we don’t know how things will be in eight months, a year.”

But startups that are struggling to survive can’t ignore market conditions. While Ashshowwaf said the investors he’s worked with have been very helpful in offering intros, advice and their time, he can’t ignore the fact that there was record-breaking fundraising in the first half of the year.

“It keeps me up at night, to be quite honest,” he said. “The conversations are extremely positive. The follow up, the support, the willingness to introduce us up until the point of writing that check. This tells me there is a disconnect.”

He added that founders also notice the number of programs and accelerators that have been launched and paraded by investors this year despite it being more difficult to tap into those resources.

“It is this really weird balancing act,” Savodivker said. “You know there is a lot of money out there, but it feels like it is harder to get those checks. You know there is money there.”