Market Uncertainty: Advice for Founders

Matt here. Last year, I wrote to you to share my perspective on values, focus, and fresh ideas for founders.

Since then, the public markets have been a bit of a rollercoaster. And the venture capital landscape has quickly followed suit. I’m sure many of you are living it – the high highs just a few months ago, followed by this latest crash. It’s enough to cause any entrepreneur whiplash.

This could be a temporary blip. Or, it could represent the start of a more prolonged correction. Those of us who are actively building a startup need to plan now for what this change could look like.

While I continue to build my next venture (more soon!), here are a few ways I’m thinking about my own plans for the road ahead.

1. Define your goals for the next two years.
Hone in on these clearly marked goal posts for the next 18 – 24 months, and have a plan for how to spend smartly to get there. Growth at all costs is not a smart strategy, and you should plan to meter your team, technology, and capital investments with an eye toward cash burn. In a period of market turmoil, it will become easier to become distracted, and more difficult to stay focused on your key objectives. Keep your eye on the ball.

2. Build your backup plan now (before you need one).
In the event you need to pivot to reduce your burn rate, have a backup plan ready to execute if necessary to conserve cash and extend your runway. And have a backup plan for your backup plan. Identify potential hurdles or points of failure, and make a plan to get ahead of them. The best and most effective backup plans are well established before they’re necessary – making them easy to implement when the waters suddenly become choppy. Plan ahead.

3. Pick investors strategically.
Bring people on to your cap table who have your back. Find investors who want to support you for the long haul, and who have the capability to do follow-on financings. Lean on these committed investors (and partners) where you can for support and to outsource capacity. If you wind up in a situation where you need to consider a bridge financing round, you want an investor on your cap table who you can quickly turn to. Alternatively, if you pick your investors because they like your spreadsheets, they might not be as eager when the going gets rough. Not all dollars are created equal.

4. Create value rather than valuations.
The fundraising environment is changing rapidly, and as a result, your future fundraising rounds might look and feel a bit different than previous ones. Valuations will likely start to cool. And it’s no longer safe to assume your next fundraising round will happen when you expected it to. We suggest you raise capital when it’s available, and that you keep an open mind about accepting a flat or down-round, and focus on building real value (rather than chasing a paper valuation). It’s about surviving.

In my last note to you, I wrote about why it’s important for startup founders to be resilient in the face of challenges, and to build relationships for the long term. This is even more critical today. In an era of uncertainty, leaders who are dogged and startups that are nimble will emerge stronger, while those that aren’t will fall behind.

For the most effective entrepreneurs, perhaps the moment is even an opportunity in disguise.

Have a question, idea, or something to add? Send us a note to get in touch!

Matt