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Thriving through challenging times

How venture-backed startups can embrace change and prepare for economic uncertainties

Episodic economic downturns are near certainties; the only question is when in the growth cycle your startup will encounter one, and how prepared your company will be. After more than three decades spent investing in high-growth businesses, our investment team has seen several challenging market periods. While each has had its own unique conditions, many lessons can be applied when examining the looming economic clouds we’re facing today.

Adapt, and embrace the changes.

The most adaptive companies that can pivot operations and cut expenses quickest will thrive through a downturn. Plan as if you only have six months of capital left, regardless of what your balance sheet says today. If that means shuttering unprofitable gambits, retracting ad spend, or right-sizing labor, a thriving company will make hard decisions quickly and adapt to the reality of new conditions.

Raise capital while it’s still easy. Then, raise more.

Thriving during a tightening economy depends on your ability to weather cash droughts. To ensure your runway is long enough to make it through the toughest months, raise more money than you think you might need today, even if the terms are less attractive than you’d like. Survival is worth a down round or equity dilution. Also consider acquiring venture debt, which can be easier to obtain when the venture equity market contracts.

Use funds wisely.

In periods of high inflation, interest rates will inevitably make their way back up. This increases the cost of capital and rewards companies who responsibly use capital to a profitable end. Durable growth resulting in profitability will be an especially important valuation metric during an economic downturn.

Overcommunicate with your investors.

Keeping investors and board directors intimately aware of the decisions facing the company is key to earning their confidence in tumultuous times. A dashboard of key indicators, including revenue mix, net cash and runway timeframe, customer acquisition costs, can give investors and advisors a good snapshot of how well you’re responding to dynamic conditions. More importantly, it can spur conversations and generate solutions to pre-empt a “bad news” report.

Meet the moment.

Opportunity arrives in moments of dramatic change. An economic crisis can be the catalyst your company needs to leap to the next stage of growth. Align the leadership team around the new vision and double down on the loyal visionaries within the company who stay to execute through this trying time. Exude energy, confidence and competence when communicating the strategy. The best teams will not just survive but thrive through any market condition.

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