Crunchbase has released its VC funding data for the first and third quarter of 2023. As can be seen, the downtrend in venture capital (VC) funding persists throughout 2023. According to the report, global VC funding plummeted by 53% to $76 billion year over year in Q1 2023 and fell again to $73 billion in Q3 2023. No wonder it’s becoming increasingly difficult for startups to secure VC funding. Some startups have incurred a short runway, others have to close their business. Many startups are juggling to sharpen their focus on the balance sheet, postponing their expansion, and have slowed their growth in the absence of VC funding. Overall, this raises the question of how much of an impact VC funding can have on a startup’s sustainability.
The situation is no better when it comes to climate tech funding. PwC notes that the past two years have been a test of resolve and adaptability, particularly for investors in climate technology ventures. Many factors are contributing to this, from geopolitical turmoil, sinking valuations, inflation and rising interest rates, which have set back private markets of all kinds.
Increase your company’s attractiveness
- Proof of a product market fit
A revenue stream shows that startups already have paying customers. Like banks, venture capitalists are all about understanding, minimizing and managing risk. In a phase where startups cannot provide this indicator, it is very difficult for VCs to measure the likely risk. This applies in particular to post-seed VCs.
- Emphasize the right financial measures
In the hectic world of startups, it’s not uncommon for companies to be understaffed due to many aspects, including budget limitation. This could explain why many important corporate governance measures are often neglected. However, keeping the numbers on the balance sheet up-to-date is key. Not only can a good tracking system be beneficial for the company, but it also creates a good corporate governance system. Startups, especially in the post-seed phase, can use the financial audit by a reputable accounting firm to attract VCs. It can be a source of credible financial information about the state of the company.
- Prioritize efficient operation and resource allocation
Securing VC funding can be tough, especially when startups face resource constraints while facing high operational costs. During such periods, it’s advantageous to focus on internal assessments before directing one’s energy outward, such as fundraising. Startups can focus on how to maximize efficiency and productivity. This increases the chance of optimizing cash flow and extending runway.
- Organic growth and bootstrapping
Albeit fast growth sounds very luring, organic growth is sometimes the only option when fundraising becomes difficult. However, as long as there are paying customers, there must be a way to finance and manage the operations and forecast growth. Putting customers at the center of the growth strategy and solving their real problems is essential for the sustainability of startups. Startups that demonstrate such resilience and creativity to potential investors are not only attractive, but can do well in the future with or without VC funding.
Weave network and conduct inward reflection
- Leverage your network to gain access to VCs
VC is a heavily networked community. VC investment is a form of lending without collateral, making trust the primary currency to mitigate risk. Trust is an expensive commodity. One can’t buy it anywhere, and can only earn it by building trajectory of integrity and positive growth. Having someone in the network who can facilitate positive introductions to the VC community is incredibly valuable, both during challenging periods of scarce VC funding and in normal times. Introductions are a first door opener. They help startups gaining an opportunity to showcase their business, thereby increasing their chances of securing investment.
- Craft an appealing pitch deck
When founders have the opportunity to present their business to a VC, they need to use the allotted time wisely. VCs are actively sourcing numerous startups daily, granting only 30 minutes to an hour to capture their attention. Competition has multiplied during the VC money shortage. While founders may have a wealth of information to convey through the deck, it’s crucial to be concise and focused. Remember, simplicity and attractiveness tend to captivate attention more effectively, as our brains are wired to engage easier with straightforward and compelling content.
- Genuine and confident founder
Finally, do not forget that VCs consist of individuals. People naturally gravitate towards genuine, authentic and confident characters. As a business expands, preserving these values and staying true to these principles becomes increasingly challenging. People can observe and sense whether other people have an insight and capacity to solve a real problem. Are they persistent and resilient enough to run the business long term? Will they invest enough time in the company? Do they work well together? All of these observations give the VCs confidence that founders can run their companies well.
When founders bring a compelling trajectory and a solid business proposition, it becomes challenging for VCs to turn them away. Authenticity and staying true to one’s values as a founder can significantly influence investor perception and overall success.
Conclusion
While the landscape of VC funding has seen a decline, available capital remains accessible for deployment. VCs are placing greater emphasis on investing in startups demonstrating strong operational foundations. Drawing from my experience scouting potential startups, several key strategies emerge as valuable tips to attract VC investments.
The key lies in an inward look to the organization. VC money will not help much if the startup does not have a product market fit, good customer demand, and healthy cashflow. In any case, startups need to strengthen these foundations so they can continue their business with or without VC money. Healthy startups with good growth projections are attractive to VCs and investors.
Lastly, embodying genuine, authentic, and confident characteristics as a founder is crucial. When founders have a compelling vision and a robust business proposition, it becomes challenging for VCs to overlook such potential.
