Today’s economy is challenging for startups: record inflation, rising interest rates, labor shortages, and more. Economists’ speculations about the future are all over the map. It doesn’t seem like a great time for raising capital.
But I’m always one for going against the grain. Raising money during economic uncertainty is possible; you just need the right approach. Here’s how to play to your strengths.
BUILD LONG-TERM INVESTOR RELATIONSHIPS
A downturn isn’t the best time to go rogue and build new investor relationships. Make sure you are strengthening the relationships you have before seeking new ones. You can even check back with those who dropped out of an earlier round of funding.
When money is tight, investors will be more selective. You should be more selective, too. Focus on investors who are additive to your team. Have a list of key attributes that you need to see before scheduling a meeting. For example, at Contentstack, we looked for partners with a good reputation, multi-stage reach, and resources to help us grow and scale the business.
Don’t forget to vet investors based on shared values; you’ll better understand how they’ll react when the going gets tough. One of our goals was finding an investor who prioritized giving back to the community, and we’ve been lucky to accomplish that. So, when we recently asked our board to approve pledging 1% of equity to our Contentstack Cares initiatives, it was expected instead of met with resistance. The focus became how to make it work.
An investor relationship needs to be mutually beneficial. It’s a little like dating. Compatibility will help the fundraising process and eventual long-term collaboration go smoothly.
SHOW RETURN ON INVESTMENT AND TOTAL COST OF OWNERSHIP
I’ve said before that I don’t believe in luck. When times are tough, you need to buckle down and plan. Investment funds still have a responsibility to put their capital somewhere.
Angela Jackson, a partner at Portland Seed Fund, pointed out recently (paywall) that while economic fears have reduced some investor confidence, those who can “sacrifice some liquidity now for better returns later find shelter in venture capital and private equity.”
While you can’t guarantee that your company is a “sure thing,” your job is to demonstrate that your company is a good shelter in the economic storm. Of course, that means you want to illustrate a strong ROI for investors in your company.
But take this one step further: show how your company or product is a good investment for your clients. Because when that’s working, and your sales and marketing functions are solid, the business grows. Investors want to feel confident in future growth.
Commission research that proves this. For example, if you have a tech product, show how your product lowers the cost of ownership, automates processes, and unlocks scale. Or curate customer testimonials and find ways to distribute those where investors (and potential customers) will see them.
POSITION STRONG CULTURE AS AN ASSET
Culture and company health go hand in hand. Without a healthy culture, while your company may look good on paper, employees may not be as invested in your company’s success as they could be. Happy employees mean less employee churn and greater productivity and innovation (which lead to less customer churn).
Employees who share your core company values are more likely to be committed to the overall mission. Find ways to instill those values without being pushy. Weave them into your daily business and events so that employees and customers see those values lived out. And then measure those results.
How are your employee retention numbers? Did your employee NPS improve year over year? Did you get a healthy number of submissions for your company’s values-based awards?
If you have achieved a strong corporate culture, show it off in your investor decks and conversations. If your culture needs to be improved, start building it up now.
You are fundraising in a different environment now than you were just a few months ago, and no one knows when the economy will turn around. Rather than trying to recreate the easy investing of the recent past, focus on making the best of today.
Neha Sampat is a three-time tech founder and CEO, and currently founder and CEO at Contentstack.