I’m not one for making bold predictions. So, rather than offering up a list of things that may or may not happen this year, I’d prefer to share the advice we’re sharing with our clients as they formulate their plans for 2016.
Be prepared in case fundraising takes longer
It’s never “easy” to raise capital. But relatively speaking, we’ve had a good go of it these past two years; especially at the early stage.
American VCs are talking about “Winter Coming.” The word on the street is that they will keep making investments, but they will be more selective. And they can afford to be because they have so many companies to look at.
This won’t be 2008 again. No Sequoia RIP pronouncements. Just the cooling of a market that is too hot.
All of this comes from the top down. As Fortune’s Dan Primack tells us: “2015 was the weakest year for VC-backed IPOs since 2010, in terms of dollars raised, and performance of these issues was decidedly mixed.”
While the vast majority of companies don’t IPO, the IPO markets affect all stages of private VC markets. When the IPO window is open, VCs are feeling good.
So, what does this mean in practical terms? I have two suggestions:
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i.) Know what it will take to raise your next round. In the same way that you do customer development work for your product, you need to do the same with the next stage investors. Before you’re actually fundraising, meet with them to learn what your story needs to look like for them to be really excited.
ii.) Start early. Budget at least 6 months start to finish. Make sure you have enough runway.
It’s a great time to think about your exit strategy
I always encourage startups to go big. However, regardless of when they happen, exits don’t just happen. You have to work on them in the same way you work on anything else that’s strategic to your business.
With the Canadian dollar currently trading at approximately 71 cents, Canada is “on sale” from a buyer’s perspective. That doesn’t mean that you need to take a lower price. It does mean that buyer’s dollars go further.
If you don’t have relationships with the Corp Dev groups of your most natural acquirers, now would be a good time to start building them.
As evidence of the exit environment, our exit practice at SurePath is getting busier and busier these days.
Give VIP treatment to your existing investors
In a market where it’s harder to raise follow-on capital, your existing investors are more important than ever. All funds allocate reserves – additional cash that they hold back for future investments into their existing companies. They too will have more choice on where to put those reserves. Invest in timely investor updates. Make sure they see the vision and the progress, so that you get their reserve dollars.
Markets move in cycles, so do things that sustain from cycle to cycle
Given the abundance of capital today, companies have been doing things that make sense when times are good, but might not make sense if/when things cool off. I heard yesterday about some well-funded startups offering new grads $90K salaries. That’s just not sustainable IMHO.
Make financial decisions that you can live with in good times and bad.
Have one amazing stat in your business
No startup is ever perfect. Even the so-called Unicorns have issues and are having trouble living up to their valuations. Rather than spending lots of time on your weaknesses, if you have one key strength in your business, double down on that this year. That may be the thing that creates funding or exit opportunities for you.
Remember, traction forgives all sins
There are three keys to getting funded. I call them the Three Ps: People, Product and Progress (Traction). You need one of them to raise a seed, two for an A round and three thereafter. Of the three, traction is by far the most important. Investors reward growth above all else. And buyers are continuously hungry for more growth. They can never stop growing.
Find the flywheel in your business this year and you will have every financial option available to you.
Syndicated with permission from Mark MacLeod’s StartupCFO blog.
