Customer data, transactions, financials: Still reeling from the market implosion, VCs are demanding to see numbers to back up founder pitches

• Founders say VCs are increasingly demanding detailed data and visibility into their startups before considering a deal.
• This comes as the industry reels from high-profile blowups such as FTX and IRL.
• But some in the industry say that for early stage startups, a reliance on data can create an illusion of certainty.

When Miguel Guerrero, founder of ad-tech startup Otis AI, started raising funds for his company’s Series A earlier this year, he had no idea what to expect. He’d heard about the heady boom times of 2021, about term sheets being offered after a single Zoom call and due diligence taking hours rather than weeks. He hoped that his experience would be similar.

So he was taken aback when, at the end of a preliminary call with a New York-based venture capital firm, he was asked to provide reams of detailed data, including daily transaction data, customer information, financials, and projections, effectively providing full visibility into every aspect of his business.

“It was a little nerve-wracking to open up the kimono like that,” Guerrero admitted, “but I think that’s just the market right now.”

He isn’t alone. A half-dozen early-stage startup founders tell Insider that the days of a good idea and a flashy pitch deck were long gone. After being burned by high-profile failures like FTX and IRL, venture capitalists are increasingly looking for a sure bet backed up by numbers.

“You’re going to get scrutinized much more on your financials,” said Fahad Hassan, co-founder of Range, an AI-powered wealth management startup that closed its Series A funding round at the end of 2022. Over the last two decades, Hasan has raised millions of dollars for various startups while also deploying capital as an investor at venture firm Activant Capital.

He recalls being struck by how early in the process he began receiving questions about things like unit economics, performance metrics, and fiscal projections during Range’s most recent fundraising round. He sees it as a pendulum swing away from the irrational exuberance that gripped the tech industry in 2020 and 2021, when valuations skyrocketed to impossible heights and investors flocked to hot deals.

“I was seeing kids at Stanford with zero experience getting handed million-dollar term sheets with $10 million valuations with just an idea and a pitch deck, it made no sense,” Hasan said. Investors now want to be able to point to something concrete and quantifiable to justify their investment decisions, according to him.

Founders can expect to be asked for different materials depending on the stage and sector of their company, according to Keyvan Firouzi, a product director at Carta who assists early-stage founders with fundraising. According to him, an early-stage company must demonstrate initial traction, so a consumer-facing brand may provide metrics such as traffic, conversion, or retention, whereas a business software vendor may provide revenue, retention, and cost of acquiring a new customer.

Later on, a more mature startup “must show acceleration,” in terms of revenue or user growth, “with sustainable unit economics,” according to Firouzi.

The increased scrutiny comes as dealmaking slows and investors have more time to evaluate deals. According to one solo venture capitalist, during the pandemic-fueled bubble, some investors “phoned in” due diligence because they didn’t want to miss a deal. Investors would then wait with bated breath to see how the company fared. “That used to happen a lot,” the sole investor explained.

“Perhaps we were a little too generous in believing the pitch as an industry without looking at performance,” tech investor Jason Calacanis said on a recent episode of his podcast This Week in Startups. “Now it’s gone exactly the other way,” he added. Everyone is curious about our performance as LPs. We’d like to know how many customers you have and what your churn rate is. So it’s gotten down to business quickly, and some may say it’s an overreaction, but I believe you have to play the game on the field.”

Dorothee Grant, whose legal tech startup Kaveat recently raised a seed round, said she frequently found herself in a chicken-or-egg situation when speaking with potential investors. “They wanted 12 months’ worth of data, but the company was only 9 months old,” she explained to Insider.

Avante Price, founder of events platform Posh, explained that when he was raising a seed round last year, investors would immediately request access to his company’s Stripe account, as well as detailed information about performance metrics, customer behavior, and financial projections. He described being grilled on his data in call after call, only to be told that his business didn’t fit into a proprietary algorithm and that the firm was passing.

“They literally told us that we have a model internally that we run your raw data through,” he explained, “and they explained to me, they want to match our trajectory in the first two years to the trajectory of companies that have gone to unicorn status.” He described his search as for “the golden playbook for investing in early stage startups.”

However, according to James Cham, a partner at Bloomberg Beta, a seed-stage VC fund that has been investing in AI companies for over ten years, attempting to use data to find a surefire early-stage bet is “really dumb.” “At the beginning, there aren’t that many numbers to chase, and these things fluctuate like hemlines,” Cham explained, “so I don’t think the desire for excessive documentation is that valuable.”

According to Range’s Fahad Hassan, while it’s probably a good thing that investors are being more cautious about how they invest their money, all of that data may be creating the illusion of certainty around what is fundamentally an uncertain endeavor. Making a venture investment in an early-stage company is, by definition, betting on a wild, never-before-tried idea.

“That’s just a bad seed investor, or even a Series A investor,” Hassan explained. “I think it’s ridiculous to ask a tech founder who is a year into their business what their five-year projections are.” Hasan, for one, believes that an obsession with financials and data is a red flag when speaking with potential investors. “I only want to speak with visionary VCs,” he explained.