Braving The Funding Winter: A Game Plan For Entrepreneurs Frugality will be key to your success– building more from less, ensuring quality at less cost, and deeper depth of talent and ideas will be valued.
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Recently, Y Combinator (YC), the well-known accelerator program from Silicon Valley, said in a letter to startup founders: "No one can predict how bad the economy will get, but things don't look good." A few days later, Sequoia "warned of a 'crucible moment' of uncertainty for the venture market due to inflation, the markets, and geopolitical issues."
This was followed by a series of notes, messages, Zoom calls, and warnings from all stakeholders, especially investors -present and future– calling on startups to restrict spending, increase runway, take whatever they can get, cut workforces, limit experimentation, etc. Most of the messages, while they constituted important nudges to founders, were late- no one had imagined the speed with which the guillotine fell.
The visible decline in the stock market, and the appetite of investors to be open to the risk of startups was suddenly the central theme of discussions. These messages closed any chance of divergence of views- if there was any!
The funding winter is here, and the world is shivering all over, no exceptions.
In our part of the world, with a relatively shallow pool of investors, the effect is even more pronounced. No one is writing a check, some want a reset of a term sheet already signed, others want to avoid the "sector," and follow-up rounds in progress are caught like a deer in your headlights– waiting for impending impact. The relatively small size and predictable pattern-following investment thesis surely does not help; in fact, it helps in accelerating the speed at which everyone just goes AWOL.
Now, what do these actions do to a buzzing ecosystem, which is just about finding its mojo –a long-awaited coming together of essential things– regulation, residence, cost of doing business, government support, mentors, and angel investors? Such messages, while well intended, sound a death knell to a truck full of vibrant and promising opportunity. The message ends up as if saying, "Do not even try, fighting back is futile, as the whole world has decided to let all enterprise die."
Personally, I believe this slowdown (or winter) is but an essential stop in the journey of creating great enterprises. It comes relatively frequently, and importantly, to nudge us out of our status quo, to remind us to do a status check, and see if we are really on the path to build what we set out to.
It will make the path to building and funding harder, separating the children from the adults- and leading to a clearer line-up of eventual winners. Startups who will be able to define their product and service better, build cost-effective and economically feasible models, and collect the most awesome talent around their story, will not just survive this winter but will flourish. Indeed, this may be the best time to find the best team, build the best stack, and test all your wild ideas– something a frothy market would have not given you the chance to.
So, the time has come to take the layers of clothes off and just enjoy the winter!
Frugality will be key to your success– building more from less, ensuring quality at less cost, and deeper depth of talent and ideas will be valued. Profitability, and not unviable growth at any cost, will be the mantra to success.
Raising cash will be more difficult with reduced options, and valuations will be impacted– but then, who said it was ever easy anyway! Take another layer off- that of taking no for an answer.
I would tell people to go and check out the course on cold calling– how to pitch to anyone, even when you believe no one is really interested. You will be forced to think of more innovative ways to raise their curiosity, become a better storyteller, and build a deeper association with possible investors.
When the time comes to start investing again, which will not be too long in my opinion (with all the money sitting in funds, the deployment has to begin some day!), who will investors think of? The ones that diligently kept telling their story, improving their pitch and product, focusing on profitability, and proving to everyone that they were in it for the long haul, and one winter is not going to drive them away.
Be prepared though- it will be twice as hard and half as productive. But the trudge to build a successful startup was never for the faint of heart any way. So, however counterintuitive it may sound, take off your load of clothes, as this winter tries to set in. The lighter, the better- you will find it easier to prepare for the coming spring with a great, new look, and swanky company that everyone will want to be a part of!
After all, when the going gets tough... the tough ones just keep going!
Related: Finding Value In A Recession: Thoughts On The "Crypto Winter"
