Dmitrii Zotov, founder and CTO at award-winning performance marketing platform Affise, helping companies scale via partnerships channel.
Is a recession coming? While some sources predict that a recession is on the horizon and others say signs point to “no,” what we know for sure is that businesses are adapting to bear the brunt of economic changes, real or imagined. Businesses are feeling the effects of fear, even while inflation is dropping and the stock market is rising.
Despite some healthy economic indicators, venture capitalists are still wary about allocating funds, because there is no telling what the future holds. With fewer VCs providing funding, fewer startups will be able to take their first mass-market breath.
But entrepreneurs don’t stop being entrepreneurs just because there might be danger up ahead. For those looking for VC funding in the midst of what may turn into a recession, there are plenty of tactics to increase the chance of catching a VC’s eye and eventually, their wallet.
Work On Increasing Your Valuation
The startup scene is all about valuations. Valuation is a key factor in earning VCs’ interest, as it predicts how much an investor could earn by investing in your business. The higher your valuation, the more likely you are to get funding.
Fortunately, valuation is malleable. Startups that are not yet generating revenue are exceedingly difficult to value, but there two things to focus on if you want to increase your startup’s valuation:
- Focus on metrics. The slower you burn through generated or funded capital, the less risky you look to investors. Focus on getting your capital efficiency numbers up. Taking a look at strategies like the Rule of 40, net revenue retention and burn multiple can help.
- Focus on sales strategy. Today, everything is about sales. You’ll never close with investors if you’re not selling your product. Focus on unit economics and creating a successful sales strategy to get your numbers as high as they can possibly be, legally.
Do Whatever It Takes To Be Profitable
In the battlefield of business, the last company standing wins. Do whatever you need to do to get profitable or at least break even. If your competitors aren’t doing well, you’ll be the one left alive to corner the market and soak up the available funding.
Adjust your products and pricing strategy according to the situation. It’s hard to make less profit, but it’s better than making none. The goal is to stay alive and keep your customers. You can raise prices again when your business is on a more steady footing.
Negotiate with your vendors to get lower prices. They’re in the same spot that you are—trying to stay profitable in a downturn—so make it work for you. You can also eliminate nonessential services. Cutting costs instantly improves your bottom line and burn rate. Consider getting rid of benefits no one uses, an office that’s unnecessary in today’s digital workplace and other services you’re paying for that don’t provide value.
Make Sure Your Metrics Are Stellar
Right now, VCs are scared, so they’re doing deeper due diligence than ever before. If you want VC funding, your metrics have to be stellar and above reproach. Look at all your KPIs and metrics such as net revenue retention, Rule of 40, burn multiple, year-over-year growth, and customer-lifetime-value to customer-acquisition-cost ratio, etc. Do whatever it takes to improve them before putting your startup in front of investors.
Don’t Let Fear Hold You Back
We don’t know when the environment for startups will improve, but that should not keep brilliant entrepreneurs from starting businesses and bringing their ideas to the world. With a bit of the same ingenuity you used in opening your business or startup, you can arm it against the changing tides and get the VC funding you need.
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