March 29, 2023

'It’s like being gaslit': Founders’ relationships with investors in the downturn

But not everyone’s going through a rough patch with their backers

The last 12 months have taken their toll on founders’ relationships with their investors.

51% of Sifted readers who responded to a recent survey told us that they’d been getting on worse with their backers since the downturn hit — valuations started getting slashed, funding began drying up and investors abruptly switched their interest from growth to profitability.

“It feels like being gaslit,” said one reader. “[Our investors] are pushing multiple rounds of layoffs, benchmarking against bankrupt companies and not acknowledging that they have made a paradigm shift to preserve cash burn.”

49 founders and senior startup leaders responded to Sifted’s survey. Here’s what we learnt.

1/ Investors are micromanaging more than ever

“Investors want to be involved more and there are continuous questions on why things aren’t going faster,” said one founder. Another said that they had begun to receive unplanned phone calls from VCs asking for updates.


One founder told us how “constantly babysitting” their investors’ anxieties about the downturn was a “waste of time”. 

2/ Investors are offering lots of advice — but not all of it is useful 

Readers said that there was a lot of talk about helping founders from their investors, but they rarely offered useful advice. 

“They spend their time tweeting banal stories about how busy they are supporting and advising portfolio companies, completely unaware that what founders actually need is financial certainty and support,” one told us. 

Other readers disagreed, saying investors have stepped up during trickier times and offered invaluable advice in navigating the new market conditions. 

61% of respondents told us that their investors had been empathetic over the past year.

“Our existing investors have been very supportive in strategising and helping to set the right goals,” said one founder. Another told us that while some investors were “adding to the pressure”, others had offered moral support. One respondent said that their investors had helped with the process of letting go of team members, regularly checked in and “just been a big morale boost”.

3/ Founders are keen to find alternatives to VC cash

There’s been such a shift in strategy on the startup scene in the past year that there’s major confusion at the funds themselves, one founder said. “In recent fundraising conversations, I’m pretty sure investors I was talking to just didn’t know what their funds were expecting of a company any more.”

While some respondents complained about investors dragging their feet on pumping fresh funds into the business, others told Sifted that their experiences over the past year had made them keen to become less dependent on VC cash in the future. 

But founders had to accept that the market had shifted, one argued. “Founders have been spoiled for the past 15 years and need to accept the fact that things have changed,” they told us. “We need to adapt to a new fundraising environment, and VCs would be fools not to expect change from my company.”

4/ Investors have been advising big cuts

78% of respondents told us that they’d been advised to make cutbacks over the past year, with over half being told they should reduce their headcount. 

Some founders said that when the topic of layoffs came up, their investors didn’t approach the topic sensitively. “They are not seeing the cultural disaster this can create in a very early stage company. 30% of a 27-person company means that you will have a lot of holes in the structure that everyone worked so hard to fill with the last hires,” said one.


But another pointed out that they were “not sure how sensitive investors can be” around the topic of layoffs. One founder told us that they had to let some staff go to keep the rest, and “unvarnished honesty” was a “virtue” in that situation.

5/ Pressure to hit profitability has increased

86% of readers said that they were under more pressure to prioritise profitability or revenue compared to a year ago. 

That shift is “frustrating” given how much startups have been encouraged to prioritise growth over the last couple of years, said one founder. “I'm not sure VCs appreciate how their changing whims can massively influence the entire operational setup of an ecosystem.”

One reader told us that they were angry about the fact that their VCs were asking them to prioritise revenue at the expense of product and brand, and another said they feel “backed into a corner” by the pressures to break even.

“[Our investors] are withholding or threatening to veto bridge rounds until certain burn targets are met, and constantly revising those targets,” said another.

But others see the shift as healthy for the ecosystem as a whole. “I actually feel good about [the shift to prioritising profitability],” said one founder. “I feel the challenge of constraint makes us work more efficiently and effectively, and priorities become clearer.”

Kai Nicol-Schwarz

Kai Nicol-Schwarz is a reporter at Sifted. He covers UK tech and healthtech, and can be found on X and LinkedIn