With the macroeconomic climate changing and the cost of capital going to record highs, you could say that it’s never been a better or worse time to found a company. Those who make it will benefit from thinned competition and well-earned funding, but reaching new customers and finding design partners will continue to be challenging as downsizing sweeps the industry.
3 Founder Must-Dos for 2023
1. Watch your burn closely and be realistic about your sales pipeline.
2. If you have an innovative product or service, go for it.
3. Double down on networking, sponsorship and mentorship.
For every factor that might make founding a new venture today seem daunting, there are more opportunities. It’s no coincidence that some of the most innovative tech companies in our lifetimes, for instance Microsoft, Uber and Airbnb were founded during recessions. In my roles as the founder of Advancing Women in Tech and as a venture partner at Felicis, I work with new founders who are navigating the complexities of this especially turbulent market. Let’s look at the specific challenges and opportunities founders will face over the next year and how they can come out on top.
Gone are the days when startups were encouraged to increase their burn to grow. Instead, investors are asking more questions around runway and burn multiple. While I don’t see the pace of investment slowing down, the bar will continue to rise for startups who are successful in obtaining further funding.
For CEOs, the name of the game is to never run out of money. Over the next year, watching your burn very closely and being very realistic about your sales pipeline will be more critical than ever. Everything being invested in has to be justified from a customer and ROI perspective, otherwise you may be spending money you don’t have.
While the funding world is realigning to new economic realities, it’s also progressing in its own right. More women investors are joining venture capital firms and attaining more senior positions. The share of women in director and principal positions increased to 43 percent this year, up from 32 percent in 2021 and 27 percent in 2020, according to new research from Thelander Consulting.
Yet companies founded by women still represent only 25.5 percent of total VC deal count, according to Pitchbook. This is a time where we need to be extremely mindful of how we are supporting women founders with access to funding and resources. As the bar rises for funding access, we need to pay close attention to the representation and equity amongst the founders that are receiving funding.
Room for Innovation
Recessions are double-edged swords for the startup ecosystem. Depending on your own economic and job circumstances, you may be incentivized to finally take the risk and start your own venture or you may feel less willing than ever to latch yourself to uncertainty. A large determinant of your readiness to enter the market may rest on whether your sector of expertise is ripe for innovation. For example, if you’re a fusion scientist who’s been waiting to take the leap, now is not a bad time.
I’m particularly bullish about the B2B SaaS space and cloud security looking into the next year. We’re seeing a wealth of women technical leaders starting incredibly innovative software startups. I’m impressed by founders like Barr Moses of Monte Carlo Data, Jenn Knight of AgentSync, Sarika Garg of Cacheflow and the many others trailblazing the way for technical women founders. We’re also seeing a rebirth of traditional cloud security paradigms opening up entirely new sub sectors for the market. These are just a few examples, but many other new hotspots in tech, for instance generative AI, are wells of opportunity in the near term for the right founders.
Networks and Support
During market crackdowns, an “every man or woman for themselves” attitude can arise. Funding, talent and time are all tight and the sense of competition can overwhelm that of collaboration, but embracing this attitude can be a fatal misstep.
Networks and support channels are ever important in rough waters as they are in traditional market circumstances. The connections and sponsorship that come with participating actively in founder, mentorship and professional groups can be the key to accessing hard to find talent, reaching the right investor’s desk or fleshing out the beginnings of a new product or design idea. Over the next year, instead of pulling back, savvy founders should contribute actively to their communities and networks, understanding the value that comes in return.
We must abandon preconceived notions of what a traditional startup’s path should look like and the processes to get there. We’re in a new landscape, and founders must be ready to turn challenges into opportunities to make it.