November 22, 2022

The economic downturn is being felt in the US and Western Europe and it will be here in the region imminently.  For many of you, the macroeconomic cycle and falling gross demand are probably not of much significance, but it does impact financial institutions, portfolio valuations, and funding attitudes. This sort of thing is generally cyclical, but we fear this cycle will be 18-24 months. Rather longer than the pandemic, and without the post-pandemic boom.  

What this means for founders today is that sources of funding are drying up.  VCs are becoming more cautious which means they are retreating to their home markets and they are looking to invest only in the best-performing businesses.  That means if you are looking for funding outside the region, e.g. in London, and your performance isn’t stellar you can practically forget raising from VCs outside our region. Business Angels are retreating, too, and so are the crowdfunding platforms, e.g. Funderbeam, and business angel associations, e.g. Danube Angels are struggling.

The good news is that there are still well-cashed-up funds in the region. But the demands on them will be greater than ever.  And, it won’t last forever. 

However, it is a new reality and you need to plan for it. 

So, unless you are really hyper-performing you should consider taking the following steps:

1. preserve runway: (i) stop hiring, cut all discretionary costs (if you have not raised in over a year and you still have good runway you will have usually grown these), (ii) stop development unless it can be imminently monetized, (iii) keep marketing if you are getting LTV/CAC greater than 3, and your growth is on a 4X trajectory;

2.  Develop a clear path to positive cash flow. If you can do this without raising, we recommend taking this path. If you need to raise to get there you need to show this in your deck. 

3. You may have to take a down round. It happens, suck it up and take the money.  You should look at sources of funding that you didn’t before: grants, corporate VCs, and even strategic investors. 

4.  Speak to your Principal at FRC. The closer the relationship, the more likely we are to help. 

Remember, running out of cash is not an option.