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Raising Capital during a recession: What founders need to know

If you’re trying to raise capital in a recession, it can feel like pushing a boulder uphill, with VCs ghosting, timelines dragging, and check sizes shrinking. Suddenly, “runway” feels more like a ticking clock than a safety net.

You're not alone. Many early-stage founders are in the same boat: strong ideas, limited traction, and investors who just became a lot more cautious.

But here's the truth: great startups are still getting funded, they're just fundraising differently. This post breaks down what’s changed, what still works, and how to raise with confidence (not desperation) in a tighter market.

Why fundraising during a recession is harder but not impossible

1. Capital still exists, but it’s moving slower

Investors aren’t broke, they’re just more risk-averse. In recessions, capital pools shrink, and VCs reserve more cash for existing portfolio companies. That means fewer new bets, and stronger scrutiny on the ones they do make.

2. More emphasis on fundamentals

You can still raise without revenue, but the story needs to be airtight. Expect more questions about your burn rate, customer retention, and path to monetization. The days of raising on a vibe and a Figma mockup are (temporarily) behind us.

3. Valuations get compressed

Downturns shift leverage to investors. Expect lower valuations, stricter terms, and more pushback if you’re raising at a premium. That doesn’t mean you shouldn’t raise, it just means your dilution math matters more than ever.

What investors do want to see in a downturn

1. Clear capital efficiency

Show that you’re thoughtful with every dollar. Hiring lean? Great. Building MVPs fast? Even better. Investors love scrappy, resourceful teams when times are tough.

2. Metrics over momentum

Hype fades, data doesn’t. Even if your revenue is early or small, show what’s growing: signups, conversion rate, retention, referrals, user waitlists. Prove there’s real traction behind the story.

3. Milestone clarity

Investors want to know exactly what their money unlocks. Instead of “we’ll scale,” say:

“This $1M gets us to 5K users, $50K MRR, and 6 months of runway to raise seed.”

Fundraising tactics that actually work in a downturn

1. Shorten your raise, tighten your ask

Instead of raising for 24 months, consider an 18-month plan with a clear milestone goal. Smaller rounds are easier to close, and show you're realistic about market conditions.

2. Focus on warm intros (not mass outreach)

Investors are spending less time browsing cold decks. Prioritize warm, targeted introductions from existing founders, angels, or operator funds who know your space.

3. Use your investor updates to build heat

Even if you’re not actively raising, monthly updates keep you top of mind. They show traction, progress, and help build relationships for when the time is right.

Messaging tweaks that make a big difference

Don’t lead with fear

“We’re running out of money, help!” is a surefire way to scare off investors. Instead, highlight resilience: what you’ve done with little, how you're navigating the market, and where you're headed next.

Lead with momentum

What’s working right now? Show you’re not waiting on funding to move the business forward. Investors want to back momentum, not rescue missions.

What not to do right now

• Don’t chase 2021 valuations: If the market's reset, so should your expectations.
• Don’t raise “just in case” money: Investors sniff that out. Know what you need and why.
• Don’t ghost your network: Now is the time to over-communicate, not disappear.
• Don’t wait for the market to “bounce back”: You might be waiting a while. Instead, adapt.

Yes, fundraising during a recession is tough. But tough markets build focused founders. If you stay lean, keep your story clear, and raise with discipline, not fear, you’ll stand out in a sea of noise.

You don’t need perfect timing. You need a solid plan, clear milestones, and investor-ready messaging that cuts through.

Want help building your recession-proof raise?

Capwave AI helps early-stage founders fundraise with clarity, especially when markets tighten. From pitch decks to investor matching, we make the whole process less stressful and more strategic.

🎯 Bonus: Download our Investor Outreach Guide, a practical resource to help you target the right investors, write cold outreach that converts, and build a network even in a quiet market.

Because in a downturn, your edge is execution, and we’re here to help you nail it.

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Fundraising as a Female Founder: Challenges and Opportunities‍

Fundraising is hard. But for many female founders, it’s not just about traction, TAM, or pitch polish, it’s about navigating a system that wasn’t built with them in mind.

From being underestimated in meetings to facing different questions than male peers, the data (and the stories) are clear: women face unique obstacles when raising capital. But it’s not all bad news, there’s also a growing movement of investors, tools, and tactics designed to level the playing field.

This post unpacks the roadblocks and the leverage points so you can raise smarter, stronger, and on your terms.

The Real Challenges Female Founders Face

1. The Numbers Don’t Lie

In 2023, female-only founding teams received just 2% of total VC funding, a stat that hasn’t budged much in years. Mixed-gender teams fare better but still lag far behind all-male teams.

2. Different Questions, Different Outcomes 

Research shows that female founders are more likely to be asked “prevention-focused” questions (e.g. “How will you avoid risk?”) while male founders get “promotion-focused” ones (e.g. “How big can this get?”). The result? A narrative gap that impacts funding.

3. Pattern Matching Bias 

Many investors are still subconsciously looking for the next Zuckerberg, and that often means young, male, tech-background founders. It’s harder (though not impossible) to break the mold.

Where the Opportunities Are

1. More Female and Diverse Investors

The rise of female-led funds, angel syndicates, and community-based investing (like operator funds or rolling funds) means there’s a growing pool of capital actively seeking female-led companies.

Some examples:

• BBG Ventures
• The Helm
• Female Founders Fund
• Chloe Capital
• SoGal Ventures
  
  

Build relationships here early, they're not just writing checks, they’re building ecosystems.

2. Storytelling as a Superpower

Female founders often excel at narrative clarity, empathy-driven products, and identifying underserved markets. That’s a strength, not a soft skill. Use it to craft a deck and pitch that resonates beyond the numbers.

3. Tailored Support Communities

From All Raise to Women Who Tech, communities exist to connect female founders to mentors, investors, and resources. Tap in. You're not doing this alone.

Tactical Tips to Navigate the Fundraise

• Speak to Growth, Not Just Grit: Investors back potential. Don’t just talk about how hard you’ve worked, talk about how big this can get.
• Reframe Investor Questions: If you get asked about risks, flip it into a growth story.

Example: “You’re right, X is a challenge. Here’s how we’re turning it into an advantage, and why the market is leaning in our direction.”‍

• Build a Targeted Investor List: Don’t just blast your deck. Focus on investors with a track record of backing diverse teams, or with theses that align with your market, problem, or customer.

Common Mistakes to Avoid

• Playing small: Don’t water down the ambition. Aim big and speak in outcomes.
• Avoiding the money convo: Know your numbers cold, CAC, burn, runway, margins.
• Hiding vulnerability: Be honest about what you’re solving, but also clear on why you’re the one to do it.
• Waiting to be “ready”: Fundraising is never perfect. Momentum beats perfection.

Fundraising as a female founder comes with challenges, but it also comes with powerful leverage when you know where to look. From building the right investor list to flipping the narrative, the path to capital isn’t about fitting the mold, it’s about breaking it.

Be bold. Be loud. Be clear. And don’t fundraise alone.

Want to build a smarter, sharper fundraising process?

Capwave AI helps female founders go beyond the deck, by helping you craft a clear narrative, track investor engagement, and send polished updates (comings soon) that keep momentum alive.

🎯 Bonus: Download our Capital Raising Playbook, a step-by-step guide to planning your raise, building your pitch, and avoiding common pitfalls.

Because you don’t just need capital, you need control. Capwave helps you raise both.

In one of the fastest-moving and most debated moments in the AI startup world, Windsurf, a fast-growing developer tools company, was almost acquired by OpenAI. Instead, its leadership team was hired by Google, and its remaining assets were bought by Cognition AI. All of this happened over the course of just a few days.

The whirlwind raised big questions for founders, customers, and investors alike:
Who actually owns Windsurf now? What happens to its tech and team? And is this how all AI acquisitions will work going forward?

Let’s break down what happened, why it matters, and what it says about the future of AI, startups, and tech regulation.

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What is Windsurf?

Windsurf is a high-growth AI coding startup, backed by Kleiner Perkins and Greenoaks, with ~$82 million in ARR and over 350 enterprise customers, known for its agentic IDE designed to augment developer workflows. (Reuters)

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Here's a quick overview of the events:

• OpenAI's $3B deal collapses:
  OpenAI was in late-stage talks to acquire Windsurf, reportedly valuing it around $3 billion. But according to TechCrunch, the deal fell apart over concerns about whether Microsoft, OpenAI’s biggest backer, would gain access to Windsurf’s tech.
• Google swoops in ($2.4B "reverse-acquihire"):
  TechCrunch reported that within hours, Google DeepMind hired Windsurf’s CEO Varun Mohan, co-founder Douglas Chen, and several top engineers. At the same time, Google secured a license to some of Windsurf’s core technology, in a deal reportedly worth $2.4 billion. This wasn’t a full acquisition, more like acquiring a portion of the team and tools, without buying the company. Check out Windsurf’s statement.
• Cognition buys the rest (July 14):
  Just days later, Cognition AI, maker of the AI coding agent Devin, acquired what was left: Windsurf’s codebase, brand, enterprise customers, contracts, and remaining employees. The terms weren’t disclosed. Cognition plans to fold Windsurf’s tech into Devin, which already aims to be a fully autonomous software engineer. Here is Windsurf’s statement.
  
  

So who got paid, and who didn’t?

The Windsurf deals sparked widespread discussion over who actually benefited financially. While exact terms remain private, multiple reports help paint a clearer picture. 

When Google hired Windsurf’s CEO, co-founder, and several core engineers, it did so as part of a $2.4B reverse-acquihire and IP licensing deal, not a company-wide acquisition. According to TechCrunch and The Information, employees who joined Windsurf in the past year did not receive a payout from that deal.

Shortly after, Cognition acquired the rest of Windsurf’s assets including its product, brand, and remaining staff. Cognition committed to waiving vesting cliffs and ensuring 100% of retained employees would participate financially in the new structure, likely through equity in Cognition rather than upfront cash.

This split reflects a broader reality in this kind of deal: when acquisitions are partial and fragmented, compensation outcomes can vary widely based on role, timing, and which side of the deal you end up on.

It also highlights how this structure (no full company acquisition) may have avoided triggering antitrust review, despite major shifts in talent and IP control. If more AI startups are carved up this way, regulators may face pressure to update how consolidation is defined.

“Split” acquisitions and employee payouts

Google’s move (separating Windsurf’s leadership and IP from the rest of the company) has sparked debate over fairness and transparency.

Here are real voices weighing in:

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These reactions reflect the tension: while Cognition's deal provided some financial clarity by offering accelerated vesting and equity participation, critics question whether newer or less senior employees truly benefit as much as founders or investors.

The core issue? As this deal illustrates, when startups are split across entities, the equity rules and payout structures can vary dramatically, often favoring select teams over the broader employee base. This underscores the growing need for more transparent protection mechanisms for all employees, especially in emerging “reverse-acquihire” and asset-split deals.

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Final Thoughts

The Windsurf saga shows how fast the ground is shifting in AI. Startups aren’t just being acquired, they’re being disassembled and redistributed. That means more flexibility for buyers, but also more risk for customers and teams.

For founders, this is a reminder to think not just about building a valuable company, but about how its value could be pulled apart.

For everyone else, it’s a sign that the future of tech M&A may not come in one neat package anymore.

Planning your startup’s pre-seed runway? Here’s what most founders get wrong

Fundraising is tough, especially when you’re constantly checking the bank balance while trying to build something real. Raise too little, and you’re back pitching before you’ve made progress. Raise too much, and you’re giving away equity you haven’t even had a chance to earn.

So how do you figure out what’s just right? That’s what this post is for.

Why runway length actually matters

Let’s be real, investors aren’t writing checks just so you can stay alive. They want to see you build, learn, ship, and grow. Most pre-seed rounds are designed to buy you 18–24 months of focused execution.

That usually breaks down to:

• 12–18 months of actual heads-down work
• 6 months to prep and raise your next round without scrambling

A healthy runway gives you breathing room. It means you’re not pitching with one month of cash left and panic in your eyes. You’re in control, not on the back foot.

How to figure out your runway

This isn’t about copying what someone else raised. Your runway depends on your goals, your burn, and how fast you need to move.

1. Map your milestones

Start with the big picture:

• Are you building an MVP?
• Testing for product-market fit?
• Running early GTM experiments?
  Trying to get your first paying customers?

Get super clear on what progress looks like between now and your seed round.

2. Build a burn model

Now work backwards. Estimate your monthly spend:

• Team salaries (even if it’s just the founders for now)
• Product + dev costs
• Tools, software, contractors
• GTM, marketing, design
• Legal, ops, and “oh yeah, we forgot about that” expenses

Multiply your burn by how long you think you need to hit those milestones. Then tack on 6 months for fundraising.

✨ Founder tip: Add 15–20% cushion. Things always cost more or take longer than expected.

‍3. Choose your runway range

So, what’s the magic number?

• 18 months = lean build and test
• 24 months = more room to iterate or go after a slightly bigger vision
• 30+ months = okay if you’re in a slow market, but be ready to justify it
  
  

Remember: the longer your runway, the more you’ll likely dilute. The goal is to raise enough, not everything.

Common mistakes to avoid

We see founders trip on this stuff all the time. Here’s what to watch for:

• Raising for <12 months: You’ll be fundraising again before you’ve built anything meaningful.
• Raising way more than you need (with no clear plan): Just burning equity on vibes.
• No fundraising buffer: If your runway ends the same month you start fundraising, you’re doing it wrong. Give yourself time to warm up, pitch, and close.

A quick sample timeline

Here’s what 24 months of thoughtful execution might look like at the pre-seed stage:

• Months 0–6: MVP, early users, feedback loops
• Months 6–12: Improve product, sharpen GTM, grow usage
• Months 12–16: Build your fundraising narrative + investor pipeline
• Months 16–18: Start pitching and closing the next round
• Months 18–24: Deploy fresh capital, double down on what’s working
  
  

This isn’t a hard rule, but it’s a good frame for planning.

Pro tips to make your runway work harder

• Forecast monthly and track burn like a hawk: Don’t wait for a board meeting to realize you’re behind.
• Break milestones into bite-sized chunks: “Launch MVP” sounds big. Break it into weeks.
• Talk to investors early (before you need them): Momentum builds over time.
• Know your numbers: Not just how much you want, but why. Smart founders raise with a clear story.

Your pre-seed runway isn’t just a number, it’s the story of what you’re going to achieve before your next raise. Aim for 18–24 months, align it with real milestones, and bake in space to raise before the money runs out.

Don’t let lack of planning be what slows you down.

Planning your runway? Let Capwave help.

Capwave is built for early-stage founders who want to raise smarter. We help you:

• Plan your raise with confidence
• Turn your pitch into a compelling investor story
• Keep investors in the loop with clean, consistent updates (coming soon)
  
  

🎯Bonus: Grab our Basic Dilution Calculator to see how different runway lengths impact your equity, and raise with eyes wide open.

Or jump into Capwave AI to streamline your next raise from pitch deck to investor updates (coming soon), all in one place. 

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What to Include in a Fundraising Data Room + Free Checklist

If you’re an early-stage founder navigating startup fundraising, getting your fundraising data room organized can feel overwhelming. With so many documents and investor materials to gather, it’s easy to get stuck or miss key items investors expect.

But don’t worry, a clear, simple checklist can make all the difference. It helps you build a polished, investor-ready data room that speeds up due diligence and keeps conversations moving.

Below, we break down what to include in a fundraising data room, answer common questions, and provide a free checklist to keep your fundraising assets on point.

What is a Fundraising Data Room?

A fundraising data room is a secure, well-organized digital space where you store all the key documents investors need during pre-seed to Series A rounds. Think of it as your startup’s central hub, built to simplify due diligence, reflect operational readiness, and signal your commitment to scale.

Whether you’re running your first round or preparing for a bridge, a good data room demonstrates professionalism and builds trust: key ingredients for a successful raise.

💡 Investor insight: VCs and angels don’t just look at what’s in the room, they notice how it’s presented. A clean, structured data room suggests strong internal operations.

So, what should be included in a Fundraising Data Room?

Use this section as a step-by-step guide to organize your materials. The checklist at the end serves as a quick reminder.

01. Company Overview

• Pitch deck: Your startup’s core narrative. Include the problem, solution, market, business model, competition, and team. Investors expect a crisp, data-backed story.
• Executive summary: A 1–2 page high-level overview of your business and raise. Often the first document reviewed.

02. Market Information

• Market research: Provide market size, growth trends, and TAM (Total Addressable Market) / SAM (Serviceable Available Market) / SOM (Serviceable Obtainable Market) analysis to show the scale of opportunity.
• Competitive analysis: Demonstrate your understanding of the landscape and your differentiated position.

03. Product Details

• Product roadmap: Highlight completed milestones and upcoming features to show momentum.
• Product demo: A Loom video or live link helps investors understand the UX and functionality.
• MVP or usage data: Real usage metrics from your prototype or early product help validate product-market fit.
• Go-to-market strategy: Show how you plan to acquire, retain, and grow customers.
• Tech stack overview: Detail what you’ve built, how, and what’s coming next.

04. Traction & Metrics

• Customer traction: Share metrics like user growth, retention, churn, and engagement.
• Revenue metrics: Include MRR (Monthly Recurring Revenue), ARR (Annual Recurring Revenue), and unit economics if applicable.
• Key performance indicators (KPIs): Highlight metrics tied to your core business model.
• Case studies or testimonials: Add credibility through customer stories or pilot success.

05. Financial Information

• Use of funds breakdown: Explain how the raise will be spent and tied to future milestones.
• Revenue model: Show how you make money and validate with early results.
• Financial projections: Provide 3–5 year forecasts that align with your vision.
• Burn rate and runway: Detail your current and projected cash usage.

06. Team Information

• Founder bios: Highlight backgrounds, domain expertise, and relevant wins.
• Org chart: Show current structure and reporting lines.
• Key hires: List open and planned roles that are critical to growth.
• Cap table: Updated equity ownership and option pool data.

07. Legal Documents

• Incorporation docs: Articles of incorporation and registration info.
• IP assignments: Clarify who owns the core technology.
• Key contracts: Include any major vendor or partner agreements.
• Employee agreements: Share docs showing equity and vesting terms.

08. Customer/Partner Info

• Customer agreements / LOIs (Letters of Intent): Signed interest or contracts show commercial demand.
• Strategic partnerships: Demonstrate traction or leverage with other companies.

09. Additional Materials (Optional)

• Advisory board info: Highlight credibility and strategic value.
• Press coverage: Shows traction and social proof.
• Investor updates: Optional memos showing transparency and progress.

✅ Staying organized not only signals credibility, it makes your raise smoother and easier to manage.

🚫 Common mistake: Don't upload outdated decks, inconsistent financials, or early drafts. Version control matters.

Fundraising Data Room FAQs

Can I use Google Drive as a data room?
Yes! Google Drive can work as a makeshift data room if you carefully structure folders and set appropriate permissions. However, dedicated startup fundraising platforms like Capwave provide more secure, investor-friendly spaces tailored for fundraising workflows. 

What format should the files be in?
PDFs are best for static documents like decks and legal papers. Excel or Google Sheets work for more dynamic financial models and cap tables. Avoid formats that require special software or are hard to open.

Who creates and manages the data room?
Usually, founders set up and manage the data room, or delegate it to their CFO, finance lead, or fundraising advisor. The key is keeping documents current, accurate, and accessible.

What’s the difference between a fundraising data room and a VDR?
A Virtual Data Room (VDR) is an enterprise-grade solution often used in large mergers or late-stage deals. Fundraising data rooms are simpler and tailored to startup needs but share core principles: security, organization, and controlled investor access.

What’s an example of a cap table?
A cap table lists all shareholders, their share classes, number of shares owned, options grants, and any special rights like vesting schedules or liquidation preferences.

How to price items in a fundraising pack?
Price details typically come in your term sheet and are reflected in your cap table and financial projections, rather than in the data room itself. Transparency on valuation and deal terms is crucial when you start investor conversations.

💬 Pro tip: Flag anything with complexity (SAFE stacks, multiple note rounds, etc.) in an investor memo. Context builds clarity and trust.

CTA: More Guidance + Free Checklist Here

How Capwave Can Help

Capwave helps founders get investor-ready by optimizing decks, organizing materials, and matching with the right investors.

Want your data room to reflect that readiness? See how Capwave AI can support your next raise.

Introduction

Launching a startup is an exhilarating journey filled with ambition and innovation. However, statistics reveal a sobering reality: approximately 95% of startups fail. Understanding the reasons behind these failures is crucial for aspiring entrepreneurs aiming to beat the odds. This article delves into the common pitfalls that lead to startup failures and offers actionable strategies to navigate these challenges effectively.

The top reasons startups fail

1. Lack of market need

A significant number of startups falter because they develop products or services without a clear market demand. According to CB Insights, “42% of startups fail due to a lack of market need for their offerings”. This underscores the importance of thorough market research and validation before product development.

Actionable strategy: Engage in customer discovery processes to understand the pain points and needs of your target audience. Utilize surveys, interviews, and MVP testing to validate your product-market fit.

2. Insufficient capital

Running out of cash is a common reason for startup failure. Many entrepreneurs underestimate the amount of funding required to reach profitability. Without adequate financial planning, startups may exhaust their resources before achieving sustainable revenue streams.

Actionable strategy: Develop a detailed financial plan that includes projected expenses, revenue forecasts, and funding requirements. Explore various funding options such as venture capital, angel investors, or crowdfunding to secure necessary capital. 

📊For a deeper dive into building smart financial projections, check out our guide on forecasting growth.

3. Poor team dynamics

A startup's success heavily relies on the strength and cohesion of its team. Conflicts, lack of experience, or misaligned visions among team members can derail progress. Building a team with complementary skills and a shared commitment is vital.

Actionable strategy: Invest time in recruiting individuals who not only possess the required skills but also align with the company's culture and values. Foster open communication and establish clear roles and responsibilities to enhance team collaboration.

📌 For a practical guide to building a startup team built for scale, read our post on structuring for growth.

4. Ineffective marketing

Even with a great product, startups can fail if they cannot effectively reach and engage their target audience. Neglecting marketing efforts or lacking a clear strategy can result in low visibility and poor customer acquisition.

Actionable strategy: Develop a comprehensive marketing plan that includes digital marketing, content creation, social media engagement, and SEO optimization. Regularly analyze marketing metrics to refine strategies and improve outreach.

5. Failure to pivot

The inability to adapt to market feedback or changing conditions can lead to a startup's downfall. Stubbornly sticking to an initial idea without considering necessary adjustments may result in missed opportunities.

Actionable strategy: Maintain flexibility in your business model and be open to pivoting based on customer feedback and market trends. Regularly assess your product's performance and be willing to make strategic changes when necessary

Conclusion

While the startup landscape is fraught with challenges, understanding the common reasons for failure can equip entrepreneurs with the knowledge to navigate obstacles effectively. By focusing on market needs, securing adequate funding, building strong teams, implementing effective marketing strategies, and remaining adaptable, startups can significantly increase their chances of success.

At Capwave.ai, we specialize in supporting early-stage founders through the fundraising journey. Our platform assists in crafting compelling pitch decks, connecting with aligned investors, and maintaining engagement through investor updates. Let us help you turn your startup vision into a thriving reality.

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