Here’s How to Thrive During the Shifting VC Funding Environment

“The party’s over.” 

Whenever a financial boom goes bust, this phrase inevitably comes up from pundits, experts, colleagues and, of course, venture capitalists. The warnings began in late 2022 and have proven true in 2023’s statistics. 

Global funding for private companies during the first quarter of 2023 declined 53 percent year over year to $76 billion, down from $162 billion in the first quarter of 2022, according to Crunchbase data. Without ringers like OpenAI and Stripe, those numbers would have been even lower. 

For early-stage companies, these declines feel especially difficult. Without a track record of success and a still-blossoming vision for an idea’s future, finding traditional sources of funding becomes even more challenging. The situation is even more disproportionate for women- and minority-led businesses: women-run startups saw a decrease in their percentage of all VC funding in 2022, to 1.9 percent down from an already dismal 2.4 percent in 2021. Meanwhile, venture capital for Black entrepreneurs decreased by 45 percent in 2022. 

With venture capitalists engaged in the financial version of turning up the lights, clearing the table and turning up Donna Summer’s “Last Dance” to full blast (at least until further notice), what should entrepreneurs do while waiting for better conditions? Essentially, find a way to keep the party going. 

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Recalibrate Your Strategy

Recalibration doesn’t instantly fix entrepreneurs’ need for funding, but it does allow them to truly assess and inventory what’s needed right now and what can wait. Depending on when a business most recently raised and how that capital is being deployed, the picture might be brighter than it seems. Ask yourself: 

• How much runway do you have? If it’s insufficient for your needs, how can it be increased? 
• Are you being as lean and capital-efficient as possible without sacrificing what’s best for your business and your goals? 

The next time you are seeking investors, those investors will be interested in seeing how your business weathered a challenging time, how you pivoted, shifted strategies and structured your business to survive (and possibly thrive). 

There’s no precise formula for what to keep, to slow down or to throw overboard during this time. What is right for one startup might be wrong for another. Seek counsel from advisors and figure out what you need to be successful. 

Recalibrate on Valuation

Part of market stabilization is rethinking the approach to your company’s valuation. Anchoring your company’s valuation to what was ascribed at the top of the market poses dangers to your ability to raise capital and to potential investors’ faith in your capability to properly assess your future success. 

Be open to bridge rounds or flat rounds; when valuations are skyrocketing, entry price for investors doesn’t matter as much as it does when VCs are taking a more measured and disciplined approach. It’s a relationship you’re investing in as well: The outside firm leading your bridge round could wind up leading your Series A.

Additionally, if your business is seed-stage, you might be able to tap into an accelerator program for funding. Everyone knows TechStars and Y Combinator and their extraordinary records of success, but there are accelerator programs in burgeoning tech hubs like the Portland Incubator Experiment in Portland, Ore., and The Brandery in Cincinnati, Ohio. Some, for example the New York Digital Health Innovation Lab, focus on key industries. Others concentrate on gender or race, for instance EY Entrepreneurial Winning Women or Pharrell Williams’ Black Ambition.   

Rethink Your Location

Over the past few years, we’ve seen that where you live is no longer critical to your business’s success and can even hamper it. The checks in Silicon Valley and New York City may be huge, but the competition is steep, and VCs are looking for the next big thing. 

Frankly, where your business operates has implications around your business’s capital and how long you can make that runway last. Florida, once considered an up-and-coming hub, is now becoming too expensive for those seeking to start up and bring fresh talent to the state. 

In an up-and-coming tech hub that offers a combination of interested investors, thriving innovation scenes, and proximity to deep benches of talent, including recent college grads and experienced workers. With a lower cost of living come multitudes of benefits ranging from personal (owning a home) to professional.

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Always Be Thinking About Your Next Round

With apologies to David Mamet, once you close a round, you need to start thinking about the next one and what environmental contributors might affect that next round. 

Whether you seek your inspiration from the Boy Scouts or The Lion King, “be prepared” is a mindset that is always rewarded. So when you’re thinking about seeking funding, get started sooner than you typically would. 

While the current environment seems unwelcoming to finding capital, think of this as normal and the years before this slowdown as unusual. The VC deployment, and the pace of that deployment, were accelerated dramatically. Diligence, consideration and slow decision making are not only normal but are better in the long run for the stability of the economy and for strong businesses looking to grow responsibly. Hasty capitalization leads to bad decision-making. 

There have been many reminders over the past few years about what too much, too soon and lack of diligence and oversight can cause. As frustrating as this time is for so many businesses looking to grow responsibly, there’s an opportunity to be found in being receptive to possibilities and resetting what you’re doing to grow.