As an entrepreneur, it’d be naive to expect to operate in boom times. Market turbulence is inevitable, and raising capital during an economic downturn, especially, is challenging. A positive mindset alone is one of the most valuable assets PE/VCs can possess when fundraising during a downturn.
However, effectively navigating an economic downturn takes more than just a “glass-half-full” mindset. To stay ahead, PE/VCs need to leverage a combination of strategies, ranging from proof of profitability to cash conservation. Keep reading as we dive into five tips firms can implement in the next thirty days to best support investments when facing an economic downturn.
Build a Strong Product
We are in no way insinuating that building a solid product is easy. But for those up for the challenge, spending the time and energy it takes to make a strong product could be the edge you need to withstand an economic downturn. And it all starts with a Minimum Viable Product (MVP).
By developing an MVP, startups can reduce the risk of product failure and spend their energy proving to investors that the functionality not only exists but can also be used to solve real problems.
You don’t need us to tell you that conserving cash is critical during a recession. If you’re fundraising during an economic downturn, investors will be saving, too, which means firms may need to play a bit of a waiting game.
In the meantime, founders can be advantageous by cutting out all unnecessary costs and keeping a close eye on cash flow to position their businesses to withstand an uncertain economy.
If you take one piece of advice from billionaire entrepreneur and investor Mark Cuban, follow his raise-capital-as-a-last-resort philosophy. Explore funding alternatives in the form of sweat equity, kickstarters, and customer equity. After all, once you give up ownership in your company, that’s when the real work starts.
“Investors aren’t giving you funds for charity, and the minute you take that money, that’s not the end, but when the obligation really starts. You thought you had an obligation to grow your business before you took the money? You have no idea.”Mark Cuban
But that doesn’t mean you have to go about it alone. When in a recession, competition can quickly transform into collaboration. Seek out organizations offering similar solutions, and combine forces. There is more strength in numbers when it comes to fundraising in an unpredictable market. As a result, collaboration could unlock the ability to gain more awareness and more funds than if you were to go it alone.
Focus on Forecasting
With a looming recession, effective revenue forecasting is now more critical than ever. Before securing any series funding, it’s critical for founders to take the time to study their business’ financial health. This includes all business and personal taxes, P&L statements, bank statements, revenue projections, etc.
It’s good to know this information and leverage it for a clear, data-driven picture of the amount of funding required to prove profitability to investors. Solid accounting, paired with data like an increase in market share, or forecasted revenue, will seal the deal faster than a compelling vision ever could–especially in a rocky economy.
Provide Investors With an Opportunity
Remember: many investors are countercyclical and know some of the best investments are made during a recession. The mounting pressure being placed on PE/VCs to step up their investment pace and put a record amount of dry powder to use makes now an opportune time to be investing in startups or a VC fund.
From lowering burn rates to providing all portcos with a minimum extended 24 months runway, PEs are uniquely positioned to accelerate their growth during an economic downturn. And when it comes to fundraising, it could be as simple as presenting investors with an opportunity.
If you’ve laid the groundwork from the five tips we’ve covered today, you’re already well-positioned to present investors with that opportunity. And, from sales forecasting to data-driven insights, Altvia can help supercharge your efforts. To see how, request a demo with a member of our team.