How startups can attract the right investors during the tech downturn

After over a decade of easy money and almost feverish investor competition for startups, venture capital has slowed due to rising interest rates and declining market liquidity.

Investors are less likely to throw cash at profitless or overstated startups who promise the world yet don’t have the data to back up their claims of success.

Murmurings of a tech downturn surfaced from Silicon Valley late last year, and since then we have seen numerous major players in the industry hit with significantly lower valuations and many have hit the brakes on hiring.  

In July ‘buy now, pay later’ giant Klarna recorded a 85% valuation drop from $45.6B to $6.5B.

‍Even Meta has put a freeze on hiring, with CEO Mark Zuckerberg announcing this week that the social media giant will have a ‘somewhat smaller’ company by the end of 2023.

‍Major Australia companies, such as Canva and Atlassian, have also seen a big drop in valuation and it seems like the current market conditions will leave their mark on every part of the sector.

‍Yet, for those startups and early-stage business that have the information and data to back up their concepts, the future doesn’t look so grim.

No matter what the news is saying, venture capital is not dead.

And although it has slowed, this has ensured that astute investors are even more concerned with aligning with businesses that have validated their research and performed proper due diligence.

Time and time again, we have met with amazing companies who have failed to make their ideas stack up.

For startups, there is a fine line to walk between promoting a concept and overstating its capabilities and growth projections.

This is why it’s essential to put the processes in place at the beginning to capture the necessary data to legitimise what a startup says their business will achieve.

‍Current market conditions aside, it's critical for a startup business to accurately assess their value and growth projections in order to secure resourcing and funding. 

‍It is difficult for startups not to get caught up in the buzz of ‘what could’ be when looking at valuations and growth.

‍But regularly coming back to the fundamentals – ‘why did we start this business? What are our values? What problem are we solving?’ - will help startups keep their feet on the ground when looking to attract solid venture capital.

To do this, core business planning is essential.

Business planning fundamentals

Boring, we know. But essential, yes! Start with the basics so that you have a foundation to build upon.

‍From the get-go, make sure you have the following in place:

• A business plan.
• Proper project management planning.
• Workflow processes – such a regular work in progress (WIP) meetings, efficient filing systems and storing of information.
• Business or service agreements when engaging third-party providers.

Proper tracking of experiments and iterations of business concept

Real data is key! 

‍It is easy for founders to get caught up in the concept and its potential, but you need the information and data to back up what you say your business can do.

‍Startups are often so focused on growth that they aren’t disciplined about quantifying that growth projection.

‍To an investor, what’s tangible is what a startup has done, not what it plans to do.

‍Startups need to do the appropriate market research to ensure their concept is viable.

Create a solid pitch deck

Your pitch deck will shape a potential investor’s first impression of your business.

And there are so many that come across an investor’s desk that you need to ensure it communicates exactly who you are and what you offer, in the most succinct way possible.

According to recent research from Dropbox DocSend, “founders have to really think deeply about their business, but communicate briefly.”

Venture capital businesses want to know ‘why’ a startup is doing what they do, their business model, and statistics on how the business fills a gap in the market.

Keeping your pitch deck short, presenting real data, strong messaging and a clear value proposition is the recipe for success.

Conclusion

In summary, while growth marketing is an essential part of the mix when promoting your startup for investment, overstating its growth potential or value is a hard no.

Overstating a startup’s value and growth projections will mean you could miss out on valuable opportunities to engage with the right investors to help leverage your business into the future.

‍In 2022, venture capitalists are much more interested in aligning themselves with businesses that fill a gap in the market and have the data to validate their claims.

It is also key that both founders and investors values align, so that an exchange of information, guidance and knowledge is a key part of the investment process, and not just funds.

‍Trust and honesty are an essential part of this mix. And founders want to attract investors that they can learn and grow from – from a personal and professional perspective - not just a financial one.