I’ve had quite a few conversations recently with founders on this topic, but one recently stuck out. A co-founding team of a company I’m fond of (but not invested in) has 90 days of cash in the bank and has had 50+ investor meetings recently. While raising previous rounds was relatively easy for them, now… crickets.

It is a difficult situation, but it can be navigated. We spoke for a while, and I thought I’d share the summary here if it helps other founders who have raised previous rounds and have a revenue-generating business.

What’s going on?

• There has been a correction in the public markets, which is now filtering to private markets
• There is a potential recession looming, and it seems unlikely central banks will intervene in the short term
• Several other issues are at play impacting confidence (inflation, supply chain, geo-political, etc.)

Investors have bigger funds than ever. Why aren’t they investing?

There has been an incredible amount raised by fund managers (across venture, private equity, private debt etc.) over the last few years. Still, the above events have created a challenging environment for raising money for founders and have put pressure on valuations:

• The previously popular method of creating private valuations based on public comps is unattractive at the moment
• Confidence of investors has shifted, meaning higher thresholds are required for new funding and (except for elite companies) potentially a new way of viewing valuation
• We are seeing instances of investors pulling term sheets (and hearing about some investors not completing funding commitments)

Also Read: Base.vn founder’s new SaaS startup True Platform attracts US$3.5M seed funding

What should I focus on?

• Work out whether you are default alive or default dead
• Prioritise survival and maintaining control, make difficult decisions early
• • Understand the potential change (depending on your stage and growth rate) in how others will appraise your company (revenue vs free cash flow)
  • Consider if there are alternative ways to achieve customer-led funding (or increase your runway), there may be options available outside traditional equity
  • If you need to let people go, do it quickly and respectfully. Help them get other roles where you can

• Ensure your updated operating plan is robust and has buy-in. It either gets you to cash flow positive or to your next funding milestone (with a meaningful safety buffer)

  • Road test your plan with key stakeholders

  • Consider getting external input from potential subsequent round investors as to what milestones they’d expect to see

Additional reading

• Adapting to endure – Sequoia

• A Framework for Navigating Down Markets – a16z

• YC advises founders to plan for the worst – YCombinator

• The upside of a downturn – Lightspeed

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