The World Bank’s latest studies reveal the possibility of a recession in 2023, followed by a series of financial crises in emerging markets and developing economies that will cause significant damage to countries, societies, and individuals as central banks worldwide simultaneously increase interest rates to combat inflation.
As a startup founder, you are not immune to this crisis, as many funds and venture investors are now correcting startups and redirecting the flowing venture capital in a way that may slow down in the coming period.
The venture capital industry currently rests on a record level of cash reserves held by mutual funds and investors – $290 billion of this money available in the US alone – but it would be foolish to think that this money will flood the market as if there had never been a crisis before. Patrick Flesner, Partner at Leadx Capital Partners, spoke about this in an article published on the Inc. platform in which he mentioned 4 reasons why venture capital investors do not return to their pre-crisis financing behavior, where he said:
1. They have already been asked by their limited partners (the funds, corporations, and family offices that have committed to invest in VC funds) to deploy the capital available more slowly.
2. They struggle with the performance of their existing funds and deploy a large portion of the dry powder available to companies that are already in their portfolios (to the extent possible).
3. They invest a significant amount of dry powder into rather mature companies with clear and compelling exit opportunities.
4. Given the valuation corrections, venture capital investors have become more risk-averse and will deploy a large portion of the remaining dry powder to grow startups efficiently.
10 Tips to Grow Your Business and Attract VC in 2023
In his article, Patrick Flesner offered 10 tips for startups that grow efficiently and who want to expand their business and attract venture capital that will help them thrive in 2023. It can be summarized as follows:
1. Do not blitzscale unless:
- Your market requires you to prioritize speed over efficiency.
- You have reasons to believe that investors will fund your high-risk venture.
2. Instead, fast scale. If you fast scale, you first validate your business model and then accelerate growth. It may take you a bit longer to build a massively valuable business, but the probability you succeed is significantly higher.
3. If you have not yet found a product-market fit, focus all your energy on generating it. If you accelerate growth without having found product-market fit, you burn unnecessary amounts of cash. Your customers will not only be hard to acquire. They will also churn fast and not return. Even worse, they will leave bad reviews that will hurt your brand and increase your customer acquisition costs even further.
4. Focus on selling into your key target markets and their segments and customers. This is where you can generate product-market fit and efficient growth the fastest.
5. Product-market fit is by no means all that matters. What good is product-market fit without a working distribution channel? Most startups do not get more than one distribution channel to work. Find this channel, and don’t invest in growth channels that do not work from an economic perspective. Analyzing your unit economics per channel will help you identify channels that don’t work.
6. Analyze your conversion funnel and find ways to improve it. The higher your conversion rate in a specific channel, the lower your customer acquisition costs. The lower your customer acquisition costs, the shorter your payback period. The shorter your payback period, the less external funding you need and the more efficiently you grow your business.
7. Analyze your customer cohorts to better understand what works and what does not. The more you improve your business model, the more efficiently you can grow. Customer cohorts can tell you more than you may think.
8. Improve your gross margin. If you can reduce your cost of goods sold (CoGS) without dissatisfying your customers, do it. It trickles down to the bottom line and improves your customer’s lifetime value.
9. Measure your growth metrics and improve the variables underlying these metrics. Can you improve your return on investments in growth? Can you improve employee productivity? Where can you eliminate slack in the organization?
10. Challenging times demand effective leadership. Don’t forget that outstanding results are not achieved alone. While you must be a strong leader, a role model, optimistic, and decisive, you need a strong team to succeed. Ensure your leadership team embraces teamwork and jointly explores ways to improve your growth efficiency.
Funding will certainly not be stopped in the coming period, but investors are now focusing on growing startups efficiently, and if you succeed in following the previous 10 tips, we expect you to have a share of funding during 2023. As Patrick Flesner concludes, the best startup founders and growth leaders do not see the current funding environment as an obstacle to overcome but as an opportunity for growth.
So, if you are eager to be part of this trend and don’t know where to start, you can always claim a free consultation with us for any startup and business growth-related topics. We will make sure to address your questions and doubts. Looking forward to hearing from you soon!
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