Tom Loverro on Startup Runway, Venture Funding and the 2023 Downturn

In this February 2023 interview, IVP partner Tom Loverro discusses his forecast for startup financing and a survival plan with investor and host Harry Stebbings. Both participants have venture investment interests. Their predictions and advice respond to the conditions they perceived then, not a current assessment of the market.

Loverro grew up around his father’s small businesses and early personal computers, then encountered venture capital at Stanford. A mentor introduced him to IVP partners; he joined in 2015, attracted in part by its equal partnership structure.

He says the wider economy and public-market valuations were in reasonable shape in his view, and that it could be a good time to start a company. But he did not expect the financing conditions of 2020–21 to return soon. He wrote a public thread to help founders adapt.

Rather than anchoring on a percentage discount from a past round, he says investors should examine business fundamentals, revenue quality, unit economics and possible exits. He regards the very fast diligence of the boom as unhealthy. These are his judgments as a growth investor.

Harry asks whether damaging down rounds will really become common. Loverro predicts more of them and says investors often avoid such rounds because they are complicated and psychologically difficult. Harry notes that his own portfolio has extended its runway; Loverro says IVP was seeing an increase in opportunities and had encountered two possible down rounds that week.

He separates startups without unusually high prior valuations from those that raised at peak prices. He says some IVP deals in 2022 were priced around 10–15 times forward annual recurring revenue, while emphasizing that pricing depends on the company. This is a description of selected deals, not an estimate for the whole market.

For companies with high valuations and extended runway, he sees a danger in cutting so deeply that growth stalls and the business cannot attract new financing. Some may continue as smaller “zombie” or lifestyle businesses. These are possible outcomes in his scenario, not a prediction about any identified company.

Asked whether investors should demand their money back, Loverro says he hopes most will not: they made a contract and should accept its consequences. He allows that returning excess capital might make sense in particular circumstances.

He calls early 2023 the calm before a potential fundraising storm. His hypothesis is that many companies will seek capital in late 2023 or 2024, while investors have limited time to assess them. He urges founders not to leave fundraising until the final moment; the timing and scale of a wave are forecasts.

In a downturn, existing investors can face pressure to fund bridges or risk substantial dilution in a pay-to-play round. Loverro says they should ask what milestones a bridge can realistically finance. In his experience, very short bridges can become “bridges to nowhere”; he suggests that a good bridge should provide at least six months, as a rule of thumb rather than a guarantee.

He recalls an RRE bridge for Venmo that helped lead to a sale, but thinks that in hindsight a strong company like it might have benefited from more capital to keep growing. His broader view is to distinguish a business worth financing substantially from one that lacks a credible path forward.

Loverro guesses that fundraising pressure could increase in mid-2023 ahead of the post-summer season. He says the preceding valuation boom could make the startup adjustment worse than during the global financial crisis because some young companies had raised at unusually high prices. This is his contemporaneous prediction, not an established comparison of eventual outcomes.

Harry cites a pessimistic view that employees of recently valued billion-dollar startups would rarely make money from equity. Loverro is less pessimistic: preferred-round valuations and employee option valuations differ, and boards can consider ways to retain and incentivize staff. He does not quantify how many employees will benefit.

Loverro expects venture firms to slow their deployment because limited partners may not be able to recommit on the accelerated schedule of 2021. He illustrates an LP planning to invest again after three years but being asked for another commitment after nine months. His resulting estimate of less immediately available dry powder is a scenario, not a measured industry total.

He says IVP deployed carefully through the boom and did not sharply slow in 2022, presenting this as temporal diversification. That is the firm’s own account and reflects its interest in its strategy. He expects investing across multiple vintages to matter more when conditions change.

On private marks, he says he cannot speak for every firm but believes investors should have reconsidered valuations during the prior year. Valuing private companies is an art, and a public-company multiple cannot be applied mechanically. He would ask questions if an entire portfolio had not changed in value.

Harry points to family offices, endowments and sovereign capital that could become new venture limited partners. Loverro agrees with the longer-term possibility and expresses optimism about technology, but predicts that commitments in 2023–24 will be lower than in the preceding boom. The prediction is made in 2023 and should not be read as a current fact.

He argues that a public-market correction can move through later-stage rounds before reaching Series B, Series A and seed, as investors adjust expectations of the next round. He expects a lag rather than immediate uniform repricing, and does not expect seed valuations to return to the earliest levels he recalls.

On secondary sales, he thinks liquidity is a useful and enduring feature but cannot predict when volumes will recover. Selling is difficult to time: he favors considering company fundamentals, valuation and the broader market, and taking liquidity in stages rather than trying to pick a perfect moment.

Loverro says IVP took a disproportionate amount of liquidity in 2021 and, at the interview, he considered public valuations more reasonable. This is his firm’s retrospective account and time-specific judgment, not a general instruction to buy or sell.

For founders, his runway rule of thumb is to prepare to raise by the time twelve months of cash remain and aim to have funding in the bank with six or seven months left at worst. He does not mean every company must contact every investor on the exact same day; financing availability and needs vary.

Harry worries that an unsuccessful early fundraising process can make it difficult to return to the same investors. Loverro agrees there is a trade-off, but thinks the risk of starting too late can be worse. He suggests approaching investors in waves so a company can learn without exhausting every relationship at once.

When cutting costs, he says the target should not be an arbitrary number of months alone. Management and the board should specify the milestones the remaining cash needs to fund, then assess the cuts required. More time helps only if it advances the company toward a credible goal.

Marketing should be considered strategically rather than cut automatically. Loverro argues that a downturn can lower customer-acquisition costs if competitors reduce bidding, and asks whether slightly slower growth could materially reduce burn without losing a lasting market opportunity. His examples are scenarios, not evidence that every channel becomes cheaper.

On valuation, he puts avoiding a cash shortfall ahead of defending the previous price. He recommends building relationships before a raise and trying to obtain multiple offers, which can improve a founder’s leverage. He and Harry favor a clear deadline, with diligence time appropriate to investors’ prior knowledge.

Loverro recommends bringing in experienced operators who complement a founder’s weaknesses. He argues a skilled executive may repay their cost through better decisions, while recognizing that a company cannot necessarily afford senior hires in every role. Harry notes that searching for and ramping an executive can take many months.

He advises boards to anticipate a need for experienced leadership instead of waiting for a current executive to fail. The timeline and economics depend on the company, and he acknowledges there is no simple way around the time needed to recruit and onboard.

Harry challenges the idea of prioritizing unit economics over growth: investors may want both. Loverro agrees both matter, but says the appropriate trade-off depends on timing and the product. A company might temporarily slow growth to fix a problem, then demonstrate renewed momentum; neither path guarantees financing.

For a marketplace whose unit economics improve only with scale, he suggests showing the size of the opportunity, the trend over time and concrete reasons for improvement. He cites mature dense markets as an illustrative way to explain the thesis, while distinguishing evidence from hope.

He says a company can go on offense once it has enough cash and efficiency that immediate survival is not in question. Potential moves include hiring talent released by larger firms or testing acquisition channels that have become more affordable. Those opportunities still depend on the specific business.

Harry worries that people with mortgages and families may stay at large companies for safety. Loverro agrees that risk appetite can fall, but argues that not every person will be suited to startup uncertainty. Asked about venture talent, he guesses the difficulty of finding a new seat may lead to fewer departures; he does not claim certainty.

His distinction between a decisive action and a half measure is whether management has a clear goal and is willing to make a difficult change. An easy compromise without an intended result may not solve the problem. He presents this as a judgment tool rather than a formula.

In the quick-fire round, Loverro says he feared founders might permanently prefer passive capital over board support, but believes difficult periods can show the value of an engaged investor. Harry notes cases where an investor’s champion left, leaving companies without the support they expected.

He would like venture firms to promote junior talent faster and share more carried interest. He says IVP’s equal partnership was part of its appeal. His comments reflect both an industry preference and his interest as a partner at that firm.

He identifies a missed investment in Fivetran as an opportunity-cost mistake and cites mentor Eric Wiesen’s advice to act when one has well-founded conviction. He remains optimistic about meeting exceptional founders, while acknowledging the uncertainty of individual investments.

Harry thanks Loverro for the conversation, and Loverro thanks him in return.