The tech industry is booming on paper. Over the past few years, fintech has seen a lot of growth in terms of investment, customer, and employment numbers. We all know that rapid expansion comes with an asterix. World events – regardless of whether
The global economic outlook has been impacted by the supply chain crisis and coronavirus variants. There are also clear indications that rising interest rates and inflation are cooling funding levels. CEOs
We speak to CFOs who are more concerned about future funding options for businesses.
It is wise to anticipate and plan for more difficult times in the future. Although there are many things founders can do to protect businesses, the majority of it is intuitive. Focus on your customers and retaining top talent. Reduce unnecessary costs.
One complex question I am often asked is how to fund funding plans in times of market turmoil.
Even though it can be difficult to decide when and how much capital to raise for a startup, it is possible at times. Indecision can be a powerful tool when you don’t know if the economy will improve or worsen month to month.
The best way to get started is to go back to the basics. The three main sources of capital for a company are cash, existing financing partners, and new capital. Startups
If you have equity investors, or other financing partners, now’s the time to stay in touch and plan the future together. This will ensure youre aligned with the market situation and its implications for you business. It’s important to remember that
The decrease in exit valuations will force your investors to drive greater value per dollar invested to achieve the same expected returns.
Most startups need funding to expand their business. Two more factors are important during times of uncertainty: insurance and fear of losing out. This makes perfect sense. This is a great way to get a large funding round.
This is your last chance to make a profit for a while. If you are concerned about a sharp drop in demand, it is a good idea to have enough capital to weather the storm and take advantage of any opportunities that may arise.
Let’s first talk about the fear that you might miss out. To me, I don’t believe that seeking out a big round just for the sake of it should be a strategy. Larger rounds are often subject to more pressure and have many strings attached. Not all investors are friendly to founders.
Keeping your perspective in turbulent times. Some investors might offer aggressive terms and changes to your shareholder contract.
You run the risk of making poor decisions if you rush to get a round in. It is easy to get into trouble with your investment partner, lose valuable time, or give away too much equity. If you have the right investment partner, you can end up losing your time and equity.
If you have a great business idea and a well-run company, you can find investment in any economic situation. It is important that you remember that market uncertainty will pass some day. Private venture funding was only suspended when the pandemic struck in Q1 2020.
For one quarter, before recovering to hit record highs throughout the second half 2020 and 2021. Alternative lenders and venture funds have a lot to offer financing companies that are growing and have strong unit economies. Patience is key.
It is a true virtue in this situation.
Next, how about funding to hedge for the future. This is a more difficult issue. Let’s simplify the process by looking at where your startup is now. Fintechs have never had better times in recent years, so don’t worry if you are having financial difficulties.
You could be taken out of business by a minor shock. Trying to get investment without undergoing radical structural reforms in your startup is ethically questionable and just kicks the can downhill. You may have to take your startup out if it is not in a secure position.
A down round (equity infusion with a decrease in valuation). Although it may be your last resort, it can have a negative impact on founders, employees, early investors, and their motivation.
If your company is in a healthy financial position and you need capital for shocks, insurance will be a good option. This will allow you to continue scaling or take advantage any golden opportunities. You are looking to acquire a struggling competitor or its talents?
With one caveat, it is possible to raise more capital. It shouldn’t come at the expense your equity.
It is wise to secure capital ahead of uncertain economic times, but not at the expense your long-term business goals. If you don’t need the funds, the risk of going down the path of VC investment could be high. An uncertain
Economic outlook can be either positive or negative. Non-dilutive financing of debt is the best option to provide security and peace of mind without the need for a lengthy fundraising process or equity sacrifice. Startups in a good financial situation will be able
They can get exactly what they need and then repay it when the economic outlook improves. High interest savings accounts are offered by some firms so that untouched capital can be used for debt financing to offset interest payments.
Finally, if uncertainty is making it difficult to decide what your next step should be, consult experienced advisors.