Boardroom Dilemmas – VC Cafe

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As we established in my post ‘In Q4 2022 founders face tough choices‘, we are currently going through a rough patch for many startup founders. Especially on the growth stages. But imagine the following scenario: your company achieved the beginning of product market fit. Your marketing dollars are converting to paying customers and there’s demand for your product.

That said, the fundraising market is severely contracted and increasing burn might be akin to accelerating towards the precipice. What should the board recommend? Should you say ‘carpe diem’ and put the pedal to the metal? or extend runway and reduce expectations on growth? Let’s break it down.

The conservative answer

As I covered in my post ‘Advice for startups in a downturn‘, the common practice advice for this time is pretty straightforward: do what you need to survive. That typically means the opposite of a ‘growth mindset’:

  • Cut costs / reduce burn/ extend runway as much as possible, ideally until the end of 2023 at least
  • Improve sales efficiency (i.e. reduce CAC and increase LTV, ideally using the resources you got)
  • Strive to become ‘default alive’ – i.e. become profitable, so you do not depend on outside funding to survive

Pretty much every large fund issued detailed advice on this so to do the topic justice I suggest you read their detailed manuals on how to achieve this. (Sequoia | A16Z | Craft Ventures | First Round Capital | Initialized Capital …)

As someone pointed out to me on Twitter (in response to my thread)

Keep in mind that to raise up rounds these days, the bar has gone up. For example, take into account these ‘scorecards’ for series B startups in both consumer (B2C) and Enterprise Saas (B2B)

Never let a good crisis go to waste

A contrarian view, and one that only applies to a minority of companies, is to take advantage of the current market conditions. Most of these would make anyone move uncomfortably in their chair in today’s market:

  • Secure top talent that was previously out of reach
  • Accelerate R&D and execution as competitors are likely to reduce costs/ take less risk
  • Accelerate marketing/ sales as CACs could possibly come down given less competition

Interestingly, you’ll find a lot of advice for founders about managing a downturn, but much less so about ‘thriving in a downturn’. This post by Lightspeed is one of the exceptions.

Hence the dilemma

The question is how confident are you as a CEO in your ability to raise funding in the next 6 months. The question of course depends on a lot of factors: stage, sector, geo, traction… And that’s where it gets very tricky.

Are we about to see a deluge of funding after QoQ declines? or will it continue to be less and less VC activity till we grind to a halt?

Who knows?

It’s a very risky bet to make and most would choose the safe path. But for the lucky few that are able to continue to operate in startup speed in the current market, secure access to funding and grow responsibly, could emerge stronger than ever from this challenging period.

I think the few exceptions are deep tech, or startups in a red-hot space that are seeing the beginning of product market fit and getting bombarded with inbound interest. Would love to hear your thoughts.

Eze is managing partner of Remagine Ventures, a seed fund investing in ambitious founders at the intersection of tech, entertainment, gaming and commerce with a spotlight on Israel.

I’m a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google’s first physical hub for startups.

I’m also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we’ve built 11 schools and 50 libraries in the developing world.

Eze Vidra
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