Cristobal Alonso, CEO, Startup Wise Guys.
I’ve written before that the investment cycle is probably on the turn. It’s certainly not easy to get a funding round completed right now, but in my experience, it’s not getting more difficult. And there are signs that investors are coming back into the market with greater appetite for risk.
I can’t predict how many more twists and turns there will be in the tech investment cycle between now and 2030, but I can clearly identify three things founders should be focusing on if they want to reach unicorn status in the coming years.
1. Get a talent advantage.
The first is to develop talent continuously. There are two dimensions to this: Use the current crisis to nurture your team and discover and grow hidden stars. The crisis and the uncertainty it brings can help uncover what lies underneath the shell of your employees, revealing those who are truly dedicated to the mission.
Thriving among stress is not how we all respond. But it’s how many do. It’s actually a growth opportunity—a chance to shift from a victim mindset to embrace discomfort, find yourself and become a leader.
In terms of talent development, the crisis is also an opportunity to scout the outside market for top talent that can move the needle and support founders to grow their businesses exponentially. At the time of writing, 800 tech companies had laid off 210,871 employees in 2023, a significant increase over 2022 when 1,058 firms let go of 164,709 employees. My hunch is that we are coming to the end of this cycle. If big tech firms are letting some of their people go, I suggest leaders identify and find those who could be a good fit for your startup.
2. Plan for longer funding cycles.
Fundraising is changing. The average amount invested in the smaller number of deals being completed is only slightly down. Seed deals peaked in 2022 at a median of $2.5 million and an average of $3.7 million and have only dipped marginally to $2.3 million and $3.6 million, respectively, in Q1 2023.
However, that money now has to last longer. Whereas the gap between funding at Series A and Series B was previously between three and 18 months, you should now count on longer funding cycles, close to 24 months. This will likely impact your business, so it’s important to manage cash accordingly. A good heuristic is to always have a six-month break-even plan as fallback.
To do this, some startups will need to eliminate discretionary spending—such as experimental marketing or projects with a payback period that’s too long. Other approaches might be to make frugality a company value, to hire contractors instead of full-time employees and to build an amazing internship program.
3. Choose new technologies wisely.
The past year has brought us many new tools, which, even if they are still in their infantile stages, will become more and more relevant with time.
I’m obviously thinking of large language model (LLM) AI tools here. As is just about everyone else. Just a couple months after the launch of ChatGPT in late November 2022, almost half of all U.S. companies in a ResumeBuilder survey said they were using it. Another 30% said they planned to start using it soon, taking likely adoption to 79%. Has a technology ever been so rapidly adopted?
Clearly you can leverage AI to automate your business. Look at all the things you are doing on a daily basis and see whether you can use AI to automate them. But don’t fall into the new shining object trap: “Shiny object syndrome is the phenomenon of being distracted by new and exciting opportunities… Realising you are experiencing shiny object syndrome means admitting that your focus is waning and you’re being pulled away by possibility and a fear of missing out.”
After the lights fade, I think there will be a true second and third wave of innovation in those areas that can truly help. Industry analysts at Gartner have made a science out of this observation with their famous “hype cycle,” which plots a standardized route of any new technology from its inception to the “peak of inflated expectations,” through to a “slope of enlightenment” and eventual productivity.
There’s no guaranteed path to unicorn status, of course. And these are not the only three things you will need to focus on to get there. But these are the most current opportunities and potential traps I see for startups. Putting them on your agenda could increase your chances of reaching scale and delivering full value to your investors.
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