Remember those days that “ You’re on mute” was one of the most repeated and commonly used words? I feel the same about “recession” but this one feels more overwhelmingly uncertain and concerning than the later.
While some economists don’t see a global recession happening anytime soon, other top finance executives have predicted everything from a 50-50 chance of a recession this year to a “mild” recession come 2024. JPMorgan Chase CEO Jamie Dimon sparked a cause for alarm when he warned of an economic “hurricane.”
Business owners, especially growth oriented startups, have been asking about how to fundraise during a recession. If in fact we are heading towards one.
There is no doubt that you can stress less about what happens with the economy knowing that you have built the most stable foundation you could in your business.
Apart from pursuing smart business plans and practices, what else is there to do to raise funds, grow your business past breakeven and maintain positive cash flows?
1- Gain a deeper understanding of the investment ecosystem and present accordingly
If you are pitching your business to potential new investors you are well aware that investors have become cautious about investing their money. Now, investors are thinking about the real fundamentals.
In a bull market, money is invested in the future for growth and increased business value. But in a recession, the promising future becomes less vivid and more blurry.
Instead of offering a business model focused on expansion, consider presenting an alternative that emphasizes on retaining and raising revenue in the coming months.
Your budgeting plans as well as income statements are valuable documents to bring to investors. Show them you and your team understand the hurdles of unfavorable market conditions and have steps to deal with them accordingly.
Even though it’s more difficult to get venture capital during an economic slowdown, it’s not impossible. The last great recession of 2008 produced startups like Uber, WhatsApp, and Slack.
2. Push on What’s Working Well
There’s no need to reinvent the wheel if your startup has a successful product or service. Investors want to see positive results and know where their money is going.
During a recession, consumer spending might take a hit. But if your loyal clients continue to pay for a specific service or product, keep your focus in that direction. If you plan on using funds for marketing, show investors you’re putting it towards what’s already working.
3- Rely more on your current investors than attracting new ones
Your current investors have your best interests at heart. They believed in you when they invested and they’ll want to see you succeed and preserve their initial investments.
However, get ready for some negotiations if you are choosing to go to them first.
4- Keep Calm and Increase your Cash Runway
One thing that can make your business stronger is adopting a mindset of never being able to raise and instead focusing on profitability.
You need to be patient with fundraising in an economic downturn.
It will take time and because of that you need to manage your business in a way that is able to extend your runway.
- Review your costs and restructure your budget
- Analyze projects’ and plans’ profitability on a deeper level and avoid unprofitable contracts.
5- What Would Happen Next…
Remember, good businesses with product market fit, positive unit economics, and strong leadership teams will raise capital although it will be at the new normal in terms of valuation.
Investors look at the numbers. They can love your idea and you, but if your numbers are not telling them the full story, you might be missing out on getting funded.