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Venture Financing 101: Raising Capital in Uncertain Times

Unfortunately, the days of money-wielding VCs making it rain have been chilled by an economic frost that has turned what was once rain into dry powder. High inflation, high interest rates and economic uncertainty are the perfect recipe to bring about anxiety for any startup founder. Over the past decade, many startups have benefited significantly from an investment-friendly environment over the past decade. However, throw in a global pandemic, massive supply chain disruptions as well as the rise of geopolitical issues plaguing globalization over the past several years and we are faced with the current landscape of 2023 - The Rise of Uncertain Times.

Even during normal cycles, we know all too well the difficulty that startups face in raising capital. Lately, it seems like we’ve had more and more conversations about how startups ensure that they are sufficiently capitalized to avoid startup death. As uncertainty permeates, terms like “monthly burn”, “cost-savings” and “lean” become more prevalent in the startup ecosystem. In our experience, even in uncertain times, good founders will continue to be funded. Here are our 3 tips on how to raise capital in uncertain times.

  1. Refocus KPIs: To be successful in raising capital even in hot markets, founders have to be laser-focused on tracking and improving KPIs. Indicators, such as your CAC (Customer Acquisition Costs), ARR/MRR (Annual/Monthly Recurring Revenue), and LTV (Lifetime Value Calculation), are demonstrative of product-market fit and value. During an economic downturn, material improvement in the KPIs that best represent your business send an even stronger signal that your startup has a driven and disciplined team that can make things happen even when the economy seems to be consistently throwing haymakers. A founder should take time to re-evaluate which KPIs best demonstrate growth, value and product-market fit NOW. Refocusing on which KPIs matter will allow a founder to reset his or her team so that they can be motivated to push even harder towards a goal that if achieved will provide the most value to the company. Coincidentally, achievement of that goal is also likely to excite investors.

  1. Reinforce Key Relationships: Good founders maintain and build relationships. This effort is important because a founder’s relationships help him or her navigate the multiple trials and tribulations a founder will face during the lifecycle of the startup, especially during tough times. While relationships are important for so many reasons, reinforcing those relationships that help a founder navigate the economic minefield will yield higher dividends now more than ever. Relationships are a key source of one valuable and often scant resource…good advice. By reinforcing those relationships that have yielded valuable dividends in the past, a founder is more likely to come across advice from those who have lived through tough times. The advice gleaned through these valuable relationships will allow a founder to more confidently navigate the downturn and find success, whether in sales, team building or KPI growth, and these things matter! Improving any aspect of a startup only increases the likelihood of closing investment. So, now would be a good time to reinforce those relationships that will help your company navigate and succeed in the current funding environment.

  1. Demonstrate Discipline: Chasing bright and shiny objects is exciting. Doing this is even more attractive when you are looking for a way to buttress the growth of a company that feels as if it is collapsing from the weight of current market pressure. Instead of chasing new ideas and products, show that you know how to keep focus on what is in sight without getting distracted by the world around you. Discipline is a skill that needs to be consistently curated. Showing investors that you and your team have a great deal of discipline speaks volumes about how well you can navigate a startup during tough times.

Ultimately, good companies are founded by good founders. As lawyers, we have been able to sit on the proverbial sidelines and watch thousands of interactions between startup founders and investors. What we have noticed is that good founders tend to (1) pursue the most relevant KPIs, (2) build and maintain relationships that provide value and (3) be disciplined when building a company.

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