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Unless you’ve lived in a cave or been on a mission to Mars, it’s hard to miss how much the mood in money and tech circles has changed over the past few months. The conversation has seemingly gone from utter euphoria to panic and doom from one day to the next. It’s the same sentiment as in March 2020, when the coronavirus took us all by surprise, investments stalled and stock markets around the world collapsed.
Some say it feels even more like 2008 when we were on the brink of the global financial crisis. Remember when trillions evaporated, businesses collapsed and banks closed their doors (well, just one, but still)? Just like then, the market is waiting for a looming slap in the face after letting a wild frat party mentality spiral out of control.
The signs were there all along – valuations were soaring through the roof and relatively unproven companies made eight-figure seed rounds. However, the market is now sobering up and investors may be less generous towards those companies when they come back for their Series A and B.
I’m not the one telling you how to spend the money you already have. That’s up to you and your investors. But if you need a place to start, here are some fundraising tips during these times of uncertainty.
Related: A Roller Coaster Ride: The Ups and Downs of Building a Startup During Uncertain Times
Don’t forget the money is still there
Yes, the Federal Reserve has started raising interest rates, but all the money floating around doesn’t just disappear overnight. Many venture capital funds have cash, but now they will be more careful about how they use it. Despite how all-powerful startup founders may think venture capitalists are, they still have to answer their LPs.
I asked a founder of a leading VC in Silicon Valley for his opinion and he confirmed my suspicions: “Entrepreneurs need to remember that good companies will always be financed. I expect there will be a flight to quality, but financing will probably be in a slower pace will continue with lower valuations.” He does not think the current situation will lead to a similar extreme freeze as in 2008.
The key question is: how can you position your company as a quality company that investors can easily justify?
Related: How to Make the Most of Fundraising in 2022
Show your relevance
In the dying embers of the economy in the global financial crisis, some of today’s giant companies emerged like a phoenix, such as Airbnb and Uber. Despite all the turmoil, they have proven that they can fundamentally reinvent entire markets, and this kind of innovation is irresistible to investors. The game has an idea that is just the right level of madness. As Gabriel Garcia Marquez wrote, “Crazy people are not crazy if one accepts their reasoning.”
Uber and Airbnb may have been strange concepts at the time. But the shared economy model was a hot trend and some venture capitalists were willing to take the risk, while others weren’t as we see in this timeless piece, and probably kicked themselves multiple times for sticking the letters to the letter. wall did not read. For you now it’s all about listening to the headlines telling you where people’s pain and energy is going.
There are some big trends to build your story around, but the interest in both remote working and sustainability is hard to beat. You already know that in the post-Covid world, digital transformation has become THE vertical.
In the longer term, the amount of money that will flow into slowing climate change won’t be like we’ve ever seen before. Even in recessions, there is guaranteed demand as both governments and businesses look to improve their green credentials. Remember that investors don’t want to double or triple their return, they want to multiply it by 100. If you can prove that you are in a place where demand is guaranteed to grow, you will have no problem raising money.
Related: 5 Things Entrepreneurs Need To Know When Raising Capital
Show urgency, not despair
Put yourself in the shoes of an investor – would you want to pump money into a company that barely survives? Of course you wouldn’t. You’re in big trouble if you’re burning out your existing financing and can’t yet prove your product fits the market. The first step is to slow the bleeding to give yourself more time to get your strategy right. Investors can smell despair from founders who approach them out of fear rather than opportunity.
There is a delicate balance to the game. You want to raise enough to stop raising in six months, but not so much to raise eyebrows. Investors have heard all the ridiculous stories of loss-making companies buying up all their employees Teslas.
The story you need to create is still an urgent story. You want to show that there is so much demand for your product that their money will help you meet it, gain market share and grow. They must believe that if they invest, you will be able to act quickly. The best way to prove this is to get your house in order so that you tell them the truth.
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This post 3 tips to raise money for your business in uncertain times was original published at “https://www.entrepreneur.com/article/429670”