In contemporary times, startups are taking relatively more years to become mature, not holding solid-enough unit economics. From a macro perspective, the future belongs to the mission-driven founders.
Luciana Lixandru, Partner, Sequoia Capital while speaking at the World Economic Forum in Davos said, “We cannot have blanket advice for entrepreneurs, but as advisors, we are preparing founders for a prolonged period of pain”.
Off late, valuations are being less considered if the startup does not have a quality productivity and sustainable revenue generation pathway.
SingleStore’s Chief Executive Officer, Raj Verma, while speaking at the World Economic Forum in Davos gave a snapshot of the distinct investment environment during the last three years. Verma said, in March 2020, the advice was to draw down your debt as the world was expected to run out of money, in Aug 2021, the sentiment was to encourage cash burn and in 2022, the alarm was raised to bring down the cost, fire people and eventually restructure.
The geopolitical tensions, inflation and supply disruptions impacting startups worldwide are resulting in a lack of free-flowing capital, while the market sentiment is shifting from a growth-at-all-costs mentality to a profitability and sustainable business model.
Sharing his opinion on raising capital in current times, Jack Zhang, Chief Executive Officer and Co-Founder, Airwallex said, "In a round where the valuations remain the same but the revenue grows, will be the new up rounds. Flat rounds are new up rounds".
Speaking with optimism, industry leaders share a similar viewpoint that innovation happens in cycles and for the startup ecosystem, this is the rightsizing phase for the good.
Isabelle Kenyon, Founder and Chief Executive Officer, Calibrate stated, “These are interesting times like never before. Investors were investing earlier but are confused today”.
Additionally, Caliberate’s Kenyon advises founders to get back to the basics and know how much capital their startup needs for sustainable growth.
To achieve continuous profitability, strategic budgeting and cutting discretionary spending are other imperatives to pay attention to. Echoing with other panellists, SingleStore's Raj Verma said, “Spend less than you make. One will have up rounds for the rest of the life".
Jack Zhang, Chief Executive Officer and Co-Founder, Airwallex and Zachary Bogue, Managing Partner and Co-Founder, DCVC shared a common observation that the need of the hour is to stay cashflow positive and invest time in valuable people and strategic partners who believe in your vision.
The time is undoubtedly tough today, the founders are required to keep up the passion to solve real problems, pay attention to fundamentals and for long-term success, keep an eye on the speed of execution. For entrepreneurs, a single vector view is appreciated which is to check if the annual run rate (ARR) is growing consistently.