When I first moved to London from a very hot India, the only thing I ever looked forward to was the London Summer. And even though it is as exciting to see the sun in its full glory early this year, I am, unfortunately, more concerned by the looming winter in the financial world.
The global economic slowdown has started to set in with major world economies now cutting down their growth forecasts. The Venture Capital world in many booming markets is clawing back at an alarming rate to prepare for the predicted recession. In the UK, the early-stage funding space has not, thus far, been vastly impacted- however as global capital markets are interlinked, this could mean a domino effect could lead to a liquidity crunch in UK’s tech world as well.
How will that affect your fundraising?
As most industry experts reckon, Equity Funding will become expensive, investors will become conservative with cash and take fewer risks. Your typical time frame for fundraising will now be longer than usual and valuations will drop.
In a classic “risk on” / bullish market, startups are nudged by investors to burn cash and grab market share at any cost. In contrast to that, in a bearish market, startups are nudged by investors to achieve positive unit economics and profitability.
Good startups learn to adjust and adapt strategy as per the market liquidity cycles, scaling rapidly during the bull run and balancing cash flow during bear markets- both with a view of profitability in sight.
Here are some ways we have seen entrepreneurs manage past winters:
- Penny Saved is Penny Earned: Venture Capital has largely been associated with 'growth capital' spent to achieve rapid scale. This has encouraged high spending on customer acquisition. Now would be a good time to revisit your business spending and cut down on everything extravagant. Ideally, companies aim to take less than one year to recover the cost of acquiring a customer. Markets are always cyclical, so one may again find the opportunity to step on the gas.
- Build More Revenue Streams: If your business allows you to make cash through different streams, but you have chosen to stick to something that is core to your business and cut out distractions, note that we are seeing some businesses are now reconsidering those options. Finding low-cost, easy wins, and multiple sources of revenue can help you de-risk the business and buy you time until external funding comes in.
- Alternative Financing: At a time when the equity funding market is bearish, new-age alternative finance options can help you keep your company afloat. One such option is Invoice Financing, which helps you unlock trapped cash in less than 48 hours. Having one alternative financing option in your basket also gives equity investors more confidence in investing in your company as they feel comfortable knowing that the company won't suddenly go belly up due to cash-flow problems. To know more, just drop us a line and our Associate from the Alternative Finance team will help you explore the option, free of cost.
- Government Grants: We are lucky in the UK when it comes to Government support for business- one such being the R&D Tax Credits. If you are a technology company you are most likely, eligible for R&D Tax Returns which can help you with some immediate cash injection into your business. If you would like some advice on how to apply for this grant, reach out to us and our partners will follow up quickly.
At Angels Den Funding, we will do our best to support you through these times and would love to hear from you what more we can offer.
The startup ecosystem is a close-knit community and we, with our ecosystem partners, are committed to supporting founders such as you, through the rain and the rapture, until it is sunshine again!
Wishing you good luck,
Chief Executive Officer
Disclaimer: The content of this email is not to be considered as financial advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. It is for general, educational purposes only and does not take into account your individual needs, investment objectives and specific financial circumstances. It is very important to do your own analysis before making any financial decision based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find in this email and wish to rely upon, whether for the purpose of making a financial decision or otherwise.