Four Proven Tips to Keep Your Business Warm in Fundraising Winter

Venmo and Slack were forged in 2008, during the biggest economic downturn since the Great Depression, which confirms the fundamental reason for writing this article: exemplary brands and products can grow even during tough times.

Startups through the stages and high-burn companies are riding through the cold wave of a “funding winter” where uncertainty around equity-backed funding is shaking things up for founders across industries.

After a two-year pandemic, war and international inflation, it was likely. This is not the first time that global public markets have collapsed and entrepreneurs are riddled with questions about how to overcome this without more money to solve their problems. It is a blessing to live in the information age where we can act on facts and data in real time.

Having been in the business of entrepreneurship for over 17 years, I have been aware of the difficulties that businesses could face due to restricted access to capital. For funded startups, re-engaging with your existing investors is always an option. For entrepreneurs considering other approaches to ensuring the long-term health of their business, here are four ways to make the most of an unfavorable market climate for your business:

Stay tuned for alternative financing options

Not all business agendas are worth the dilution, and not all roadmaps require you to incur a high cost of capital. Debt-backed financing is the underlying need to maintain a healthy ratio of debt to equity in your business.

The key is always to plan for equity and debt rather than equity or debt. Some of the world’s largest venture capitalists, including Sequoia and Y Combinatornow focus on investing in a realistic valuation of a startup rather than an inflated valuation after the large inflow of funds the previous year.

Startups like SMOOR Chocolates have weathered the pandemic growing their revenue 100x with flexible debt products like revenue-based financing.

If your business is currently using a line of credit, you can also evaluate other debt financing options available in the market. Debt financing providers in India are now building financing plans for a variety of use cases, which has enabled thousands of Indian entrepreneurs to scale their businesses in a founder-friendly way.

Some debt-backed financing alternatives to help startups with their operational issues would be:

  • Supply chain finance/invoice discounting to help D2C merchants manage inventory and supplier costs
  • Revenue-based funding for startups (at all stages) to fund their expansion plans with monthly revenue
  • Buy Now Pay Later or Working Capital Financing for young brands filling gaps in the credit cycle or to finance their purchases on B2B marketplaces like Amazon or Flipkart
  • Asset finance/leasing for asset-heavy startups/fast-growing cap-ex to help them with operational assets

A company’s own profit is the best form of financing. If a company is not making profits and burning costs, consider combining revenue and flexible debt to reduce the risk of equity burn.

Financial Planning 101: Planning Backward

While this may be always relevant advice for business health throughout the year, an economic downturn would be the best time to put it into practice.

With little to no information on how this funding downturn would play out, your lead becomes your top priority. This directly means that you need to cut low priority costs, keep a close eye on high priority costs, and be more vigilant about recurring operational costs. On top of that, now could be a great time to align your team and resource bandwidth with priority tasks.

What is priority? I offer this checklist and any task that checks off the majority of items can be considered a “priority”:

  • It helps you increase your revenue pipeline
  • It is an alternative to an expensive third-party solution
  • It helps you and your team save time, which can be spent on priority tasks
  • This helps you reduce your service turnaround time, which results in higher conversions/revenue
  • It helps your brand gain credibility at a lower cost

Leverage strategic partnerships to minimize customer acquisition cost (CAC)

Netflix, before becoming the global online content streaming giant, set the market benchmark for the importance of partnerships for a business during a market downturn.

In 2008, Netflix introduced its new product (the streaming service), in response to the death of video rental stores. Then, between 2008 and 2009, the company continued to work on partnerships with brands like Nintendo and Xbox so people could stream content through those devices.

It was these innovations that allowed the company to continue to grow during the economic downturn. In fact, they were growing memberships and subscriptions during the 2008 recession while other companies struggled to maintain revenue.

The underlying point of this fact is that instead of burning money attracting a million eyeballs to your brand with a low conversion percentage, it is better to create industry partnerships that can convert users/ consumers with strong intent. Your brand can benefit from partnerships in 2 main ways:

  1. Your Strategic partners become a force multiplier as they give you streamlined channels to acquire, retain and monetize consumers at a reduced CAC
  2. Your recurring costs can be significantly reduced if you onboard service partners for perpetual business needs like legal services, automation tools, facility management, and more.

Keep improving your customer experience

A good example to highlight this would be Groupon, which was just a startup during the economic downturn of 2008.

Before becoming the go-to platform for bargains, Groupon also faced challenges much like Indian startups are doing right now. In an economy where people were losing their jobs and business owners were very uncertain about their future (sounds familiar, doesn’t it?)the one thing every consumer relied on was discounts.

It worked really well for Groupon when they discounted all of their available coupons based on reliable consumer information. There is nothing that can beat a good product and a good consumer experience. Engaging consumers throughout the user journey, acting on user feedback, and creating a robust product with a unique proposition is the foundation of entrepreneurial success.

Growing startups are seeing high adoption, thriving across India, and amassing fans who love the customer-centric approach these brands take. These brands often need funding to meet their growth needs that are currently unmet. Keeping your ears close to the ground and preparing for any foreseeable crisis is the best entrepreneurs can do to weather this wave of uncertainty.

Edited by Affirunisa Kankudti

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)