Kindly do not forward as we’ve included confidential deal flow information below. If there’s someone that you believe should be part of the Palette family, we’d love to be introduced!

Hi there!

Thank you for your interest in Palette Ventures. We have enjoyed meeting and learning from you over the past few months, and we’re excited to start 2024 with strong ambitions to fuel a better consumer economy. We are hyper-focused on original, impactful opportunities at Seed and Series A across consumer products, digital services and consumer tech.

As we launch our fund (Q2 2024), our mission is to break down traditional inefficiencies and build a fund that feels like family—focusing on meaningful connection, tangible support and value accretion for everyone involved. We’d like to kick off the year by sharing what we’re doing, seeing and thinking. Please let us know what interests you most so we can include it in our next letter.

We’d love to hear from you, so please hit “reply” and share your latest :)

How we’re feeling: optimistic

Let’s be blunt: 2023 was a difficult environment. It wasn’t easy—funding for companies, funds, and funds-of-funds declined significantly. Funding for startups dropped 48% year over year and according to Carta, 40% of fundraising rounds in 2023 were classified as Bridge or Extension, while LPs reevaluated or lacked liquidity given the macro environment backdrop of public markets, economic uncertainty, and global instability.

However, the best companies are grown in an environment where founders have to make tough decisions about where to spend their time and money, and therefore we believe 2024 will prove to be an exceptional vintage. This comes down to three simple axioms.

1. Downward pressure on entry valuations will generate stronger, more outsized returns. Compared to the bull market of 2021 and 2022, valuations have declined at Seed, albeit at a slower rate than later stage rounds. While median valuations still remain elevated due to extension rounds, we’re seeing Seed rounds cooling, making for an attractive environment to make our first move.
2. Strengthened fundamentals mean fewer capital raises are needed to scale and exit. We continue to focus on tangible, measurable fundamentals that unlock capital efficiency in the earliest stages vs. relying on external capital and projections of economies of scale.
3. As history has proven, genuinely inventive solutions are born during challenging environments. The dotcom bubble created the internet; the sharing economy was born from the financial crisis; we’re excited to see what 2024 will bring!

A note the consumer startup landscape

We see these axioms in action in our day-to-day as we review deal flow and spend time with many ambitious founders in the Consumer and Consumer Tech ecosystem.

Valuations: While consumer valuations have come down since peak levels in 2021 and 2022, valuation multiples have not stabilized. While some deals are priced more rationally and transact with more reasonable time frames, we do see exceptions, where companies raise on uncapped SAFEs, at high multiples and with expedited closings; these most often occur in businesses relating to “hot topics,” including in longevity, the creator economy, and AI. We have an appetite for these sectors, but we view entry valuation as a function of exit expectation and we remain extremely disciplined in underwriting opportunities, as we target returns in line with our 6.8x and 58% IRR angel portfolio.