Last month, we discussed the importance of choosing the right venture capital partner. In light of the recent market turmoil, it seems appropriate to expand that discussion a bit. Here are additional considerations for companies seeking to raise funds in a volatile market:
(1) Be Realistic
The days of astronomical valuations for fledgling companies may be behind us, or at least stalled for the immediate future. With the current uncertainty, most investors will be taking a fairly cautious approach in the coming months. As a result, businesses seeking capital need to be realistic about the existing state of affairs and their prospects, and they must adjust accordingly. This is particularly true for early-stage startups that may need to make drastic changes to their initial strategic and financial plan.
(2) Manage Expectations
In addition to being realistic about the number of funding rounds companies can expect to encounter over the next year, as well as the amount of money they are actually likely to raise, company leaders need to ensure that they are managing expectations appropriately, both internally and externally. This may require some difficult conversations with the leadership team and/or board of directors, but everyone needs to understand the current reality and be on the same page about navigating the way forward.
Just because things seem to be a bit dicey at the moment doesn’t mean that everyone has to panic and scrap their plans altogether. Instead, expectations must be tempered and compromises must be made. Companies may find that doors that were previously open are beginning to close, and are doing so at a rapid pace. As a consequence, some companies may even find that they have to return to a negotiating table that they had long ago abandoned in the hopes of finding more favorable terms elsewhere. Obviously, revisiting a previously attempted route requires the willingness to compromise.
(4) Think Long-Term
Volatile market or not, it is becoming increasingly difficult to replicate the rapid ascension that so many “unicorns” managed to achieve over the last few years. However, this should not lead to lost hope and unshakeable despair, as long-term strategies have long been favored in the business world. Rather than anguish over lost opportunities, companies should focus on taking gradual steps to set themselves up for success over the long haul.
(5) Look for Alternatives
If the immediate infusion of capital is an absolute must for a company to move forward, there are other funding sources besides venture capital firms. Granted, the alternatives may not seem as exciting as having the support of some of the big names backing the unicorns, and these other avenues may not offer the same access to the elite world, but the money is there and having the necessary resources is better than nothing.