Cloud Capital: 2023 Rewind

2023 marks Cloud Capital’s fourth year of investments. The early-stage funding winter seemed to be at its apex in the year's first half. Despite no shortage of dry powder for upstream investments, it surely felt that all of the ecosystem players were eagerly sitting on the fence to figure out their ‘winter strategy’. So did Cloud Capital.

This year has been Cloud Capital’s lowest period of new investments and capital deployment. Other than the overall macro slowdown, which I elaborate on below, I personally also assumed a full-time operator role in building a SaaS company and raising external capital — hence further slowing down my momentum earlier this year.

2023 activity:

• Backed: 5 companies
• Deployed: ~$387,000 (~13% of 2022)
• Round participation: 2 Pre-seed, 2 Seed+, 1 Series A+
• 4 portfolio companies completed a follow-on round (all un-disclosed)
• Portfolio acquisitions: 2 (Avalon Scenes by Unacademy + 1 more undisclosed)
• Portfolio shutdowns: 6 (FrontRow, FWD Learning, Quesba, Jeevam Health, Mojocare; a portion of principal capital is returned, more on this in the future)

New investments in 2023:

• OTO Capital (Matrix Partners India, Prime Ventures)
• Raincheck.Earth
• DevRev (Mayfield Fund, Khosla Ventures, others)
• Undisclosed — Gaming
• Undisclosed — SaaS

Cloud Capital in a snapshot:

• Deployed $7.6M across 56 companies
• Active companies: 49
• DPI: 30%
• Average cheque size of ~$100,000
• 70% of investments in rounds with an institutional investor
• Top sectors of investment: SaaS, Fintech, HealthTech, Web3
• 47% of the founders are repeat entrepreneurs
• Portfolio split of 48% B2B vs 50% B2C vs 2% B2B2C
• Max # of investments in a portfolio company so far (doubling down on our conviction): 4
• Portfolio shutdowns: 7

** The above data is only w.r.t Cloud Capital investments (micro fund + Syndicate) and does not factor in any personal angel investments.

Changing landscape in 2023

• VC goalpost has drastically shifted. What qualified as positive markers in 2021/22 for pre-seed or seed-staged companies to raise Series A did not in 2023 (and most likely won’t in 2024 either).
• Portfolio came first, which meant either participating in bridge rounds to extend portfolio companies' runways or helping find leads for follow-on opportunities.
• Founder reckoning: given the shift in macro sentiments, many founders surely evaluated whether they wanted to weather the storm for the next 2 years or explore acquisition opportunities or company shutdowns entirely.

Fiduciary responsibility can’t be jeopardized: With easy capital available over the last few years, it’s been very evident that many founders were playing fast and loose. Founders must understand what ‘fiduciary’ responsibility means and act on it. This sense of responsibility isn’t just important during the building phase of the startup but even when dealing with exits — how to shut down, pivot, explore acquisitions, etc. Some founders innately understand the responsibility on their shoulders and I hate to admit that another cohort of builders exists that is completely ignorant of it. As an investor, I just need to do a better job at weeding out such deal flow early on, as much as possible.

After 4 years of active angel investing and running a micro-fund, and Syndicate — I am now reconfiguring my heuristics of backing teams super early.

As we venture into 2024, I am looking forward to disciplined investing and continuing to back early teams building outstanding companies.

Happy New Year!

Kashish