Times are changing
The first quarter of 2022 saw a 13% drop in global venture investment quarter over quarter, marking one of the first times that startup capital flows declined from one quarter to the next.
- Inflationary pressures, a stalled IPO market, and the continued turmoil generated by Russia's war in Ukraine have injected new caution into startup funding
- With the next VC check no longer as assured as it could have been even a few months ago, investors and others in the sector are advising startup CEOs to cut back on spending and save money
Saving Cash While Aiming For Profitability
Startups can lengthen their runway by reducing hiring, cutting large expenses, and, in more extreme situations, laying off staff. And several notable startups have had to do so.
- The most visible of them is mortgage start-up Better.com, which has reportedly reduced its workforce from around 10,000 in December to less than 5,000 this month
- The changes are meant to improve Better's position on its journey to profitability according to company management
- On the other hand, many startups are now set to benefit from the cost-cutting they performed when the pandemic struck as companies quickly shifted to remote workspaces in 2020, and effectively lowered fixed costs for office space and travel
Of course, the road ahead is still though and several startups and established companies will have to cut on staff as this tracker shows:
Despite some high-profile cost-cutting instances, investors say they're telling their firms to stay the course and be cautious with their funds while still aiming for sustainable growth.
"Extending" Rounds Or Raising Flat Rounds
Despite the slowdown in the venture capital sector, some firms continue to develop rapidly. Yash Patel, general partner at Telstra Ventures, said he still anticipates 2x growth in later-stage portfolio firms with strong fundamentals. In those circumstances, he is more concerned with giving businesses more runway than with decreasing costs.
- Early-stage companies, he believes, are less harmed by the slowdown right now
- Still, many new founders of such startups may need to modify their expectations because the funding environment has changed since last year
Disclaimer
Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.
Credits
Photo by Israel Andrade on Unsplash.
