Many startup founders have asked us, as investors and accelerators, the path to weathering this economic downturn. We curated a list of US and Canadian seasoned investors to convey their perspectives on the state of the market and what this means for valuations, resource allocation and raising money during this precarious period.
By Taylor McAuliffe and Hessie Jones
This article is the last section in our 3-part ‘Investor Advice in a Down Economy’ series.
Many founders are asking, ‘How worried should I really be?’ Downturns do not mean we need to panic. Pay attention to the market while you remain prudent with your spending.
The downturn has undoubtedly brought feelings of panic and uncertainty; however, investors say there are ways to persevere. Shirley Speakman, Senior Partner, Cycle Capital, acknowledges that founders should be aware of the increased difficulty this downturn will pose on their ability to create and sustain a successful business but follows up by saying this difficulty does not make success impossible. Instead, if founders can capitalize on the downturn and standout to investors, they will be part of the cream that rises to the top:
“Scarcity breeds focus. So, if you can remain focused on the customer, your cash management, and the projects that need to get done, that will help you stand out.”
Gayatri Sarkar, founder of Advaita Capital, a firm which invests in growth-stage technology startups and is focused on celebrating diversity and championing the voices of women and diverse GPs and LPs, believes that founders should be worried because of the unknown that comes with changing economic landscapes. We have not yet seen how far this downturn will go, and “battling against the unknown can be extremely difficult for founders.” Her advice is to take this worry and use it to make choices that lead to a more optimized, efficient, and well-connected business.
Jessica Peltz-Zatulove, founding partner of Hannah Grey VC and Cofounder of Women in VC, is optimistic, advising that during this time if you, as a founder, are demonstrating key character traits and taking on full leadership for your company, there is no need to panic as the good founders always get funded:
“Being really scrappy, and nimble and resilient, [are] the best traits to have right now.”
“Founders that demonstrate a growing market opportunity and pain point, hitting product milestones to successfully ship product, building/recruiting a strong team, creating culture, and inspiring people around you- there’s always going to be capital for that.”
Neeraj Jain, General Partner of MATR Ventures, a seed stage fund which invests in underestimated founders: women, Black, Indigenous, People of Color (BIPoC), LGBTQ2S, and Neuro-diverse communities, and Julianne Zimmerman, Managing Director of Reinventure Captial, which invests in US-based companies led and controlled by BIPoC and/or female founders of all identities, also advise founders not to panic:
“In general, people should not really be panicking. In the same way, you know, I think when times are good, it’s not always a time to just open the floodgates and spend all your money. So, if you’ve been a prudent operator of your business, there really is no need to panic at all,” says Jain.
Zimmerman adds that while attention towards the changing economic landscape is a responsibility that must be honed by the founder/CEO, it is equally important not to lose sight of other operating contexts of their company. Hyper focusing on managing the downturn will not accomplish anything:
“The economy or the markets form one part of the operating context of your company — a significant part, but one part. I think that a Founder CEO who does not take the markets and the economy into account at all is failing: you are no longer operating as a responsible, prudent Founder CEO. However, I also think that a Founder CEO who becomes fixated on the economy and the markets is also being pulled off task from leading an operating enterprise.”
Preparing to raise investment during a downturn? Investors urge founders to focus on storytelling, selling narratives that numbers cannot and preparing to answer to the tough questions.
The downturn has signalled to founders the need to create options for the future and increase flexibility in business strategies and behaviours, including ways in which they prepare for raising investment. We asked investors to give founders top tips for raising investments during this time.
Alaric Aloor, General Partner at MATR, has described the importance of telling a compelling story and connecting with investors, especially when money is tight. Aloor says storytelling has been and will continue to be at the heart of a successful start-up pitch:
“Story matters, connecting with your investor’s matters. Trying to get them to understand what is it that made you the founder? What is it that prompted you to start this journey? Connecting with your funders is especially important here.”
Danielle Graham, Managing Partner of Phoenix Fire and Cofounder of The Firehood, an angel fund and network focused on women in technology, acknowledges this saying storytelling narratives will get you places numbers cannot always. She urges founders to put forward an extra unit of effort and increase communication with investors.
“You really must be a true leader. It puts pressure on emotional intelligence and true leadership. Using the storytelling narratives, pictures, images, and visuals, icons, and charts to highlight your story to a potential investor in an effective way could sell a much bigger story than the numbers at this point.”
But founders’ pitches are only half of the equation. With funds not being as accessible as they once were, investors will be asking the tough questions and founders’ answers will begin to differentiate those who will stand out from those who will not. Sarkar, Advaita Capital, reports seeing many founders that are unprepared to answer questions effectively, showing a lack of calculation and homework. She gives examples of questions that investors are typically ill prepared to answer:
“They are not prepared with the questions that the investors are going to ask like, what is your operational risk, what is your churn rate, what is your LTV: CAC? What is your growth, 5x 10x? What is your net revenue, CAGR? What is your burn rate? What is the total market, broken down by segments?”
For minority founders, who historically, have not had the same level of access to funding, the downturn can pose more of a challenge. Know who you are pitching to and create a supportive network.
Female and racialized founders are met with a trickier situation compared to most during this economic slide. With an already limited access to funding, female and BIPoC founders are struggling to stand out and survive amongst the rest.
Aloor, of MATR Ventures, says picking your funders is critical to having a both a successful and enjoyable journey. Match yourself, your company, your product, your values, and your future with investors who will support and guide you will be a major factor in survival. Aloor advocates for female and racialized founders to focus on funds that primarily work with underrepresented groups:
“Know whom you are pitching, know from whom you are going to ask for money. Getting to the right person, the right group of people can make that journey as a start-up founder so much easier for you than if you went to the wrong group of people.”
Zimmerman of Reinventure Capital, a firm who invests exclusively in US-based companies led and controlled by BIPOC and/or female founders, explains why attention should be paid to female and racially diverse founders:
“During those two years and change of record-breaking amounts of capital flowing into the venture and private equity sectors, and record-breaking quantities of capital being invested by the venture and private equity sectors, the percentage of capital going to female founders and founders of colour did not appreciably improve. In fact, in some instances, it decreased.”
Zimmerman validates the importance of networking and connecting with partners and firms who are focused specifically on minority founders. Reaching out to a peer network gives an opportunity to gather invaluable candid, actionable insights, Zimmerman says.
“If you are a Founder CEO, for example, in the first year of operating your enterprise, reach out to a Founder CEO who’s 18 to 36 months ahead of you in a similar enterprise: someone who understands the sector you are in, someone who understands the path you are on. Ask their advice. What have they seen? Who has been helpful to them? What lenders have they spoken to, what investors have they spoken to? Who was helpful to them? What did that look like? What other resources have they turned to? How are they thinking about the experiences they had at your stage? And how are they thinking about what they are going through at their stage?”
At Altitude Accelerator, we also believe having a compelling story and strong answers to investor questions are an advantage that will help you secure the funding and support you need as a startup. Our Investor Readiness program provides experts to help deconstruct your pitch and build it from the foundation up, so you are ready to answer even the toughest investor questions.
We also believe in the benefit of peer support, which is why we’ve included CEO peer-to-peer learning sessions in our Incubator program, where founders can share best practices, learn from each other, and network.
Altitude Accelerator is committed to commercializing impactful technology in Southern Ontario. We offer a series of programs to startups to help them grow faster, stronger, commercialize their products, and get to market.