Survival guide for startups in the face of the crisis

In recent months, we have heard talk that the global economy is heading towards a possible recession. After the socio-economic situation we have witnessed in recent years, changes in the different sectors have become noticeable, and the startup ecosystem is definitely one of these sectors.

In their e-book “How to Finance Yourself in the New Macroeconomic Environment”, experts from UpBizor explain that since the 2008 crisis, governments and central banks have promoted an expansive policy with the aim of stimulating the economy. This policy gained greater strength during the Covid-19 pandemic, which generated an excess of liquidity and the need to place it in assets and financial products. 

After the health crisis, the increase in demand and consumption generated a supply crisis that has resulted in a price increase and accelerated inflation in 2022. In addition to this, the rise in interest rates, the container crisis, and the effects of situational events such as the war between Russia and Ukraine, are triggering a stock market crash. And what does all this mean for startups?

Overview of the startup ecosystem

During the pandemic, many startups and technology-based companies saw great growth from the change in consumer behavior, which greatly increased the use of digital platforms and tools to adapt to the needs of everyday life in this context.

These consumer needs, and the expansive policy that gave investors more liquidity, translated into a rise in the value of technology companies, and a large investment movement to boost them. Since 2020, there has been an increase in the creation of Venture Capital (VC) investment funds, and in 2021 the record for the money invested in VC was broken.

With the changes in the socio-economic situation worldwide in 2022, investment in startups has suffered a fall in recent months. According to a recent Crunchbase report, global investment was 25.2 billion in August 2022, the lowest month in investment in the last two years. As a result, fewer startups are raising investment in all their stages. 

Startups that could be most affected by these changes are expected to be those in more advanced stages or those looking to go public (IPO), as they may have to do so with valuations lower than they could have had in previous years.

Regarding startups in initial, seed, and pre-seed stages, what can be foreseen is a less accelerated growth than what those that were in this phase in recent years have seen.

It's not all bad news

The fact that investment in startups is lower than in previous years does not mean that it will stop. VCs continue to invest, and new investment funds have continued to be created during this year. 

“Low points are better than high points to invest, but also to start a business” –UpBizor

Times of crisis can become a great opportunity for the startup ecosystem, both for entrepreneurs and investors. If a startup begins at a time when valuations are low and grows until it goes public at a time of high valuations, both the startup and the investors who entered at an early stage will benefit. 

Let's not forget that it was during the 2008 crisis that some of today's most successful startups worldwide were founded, such as Airbnb, Whatsapp, and Uber. 

Here are some recommendations to continue boosting your startup in times of crisis:

Maintain a strong team

In recent weeks, we have seen numerous news stories about staff cuts in startups internationally as a measure to reduce expenses. 

However, it is important not to lose sight of the fact that the talent within your business is an important part of what has made it grow. Before deciding to make a cut, review your processes and consider options that help you reduce costs without losing your team. 

A change of positions that allows you to enhance talent within the areas that generate the most revenue, or a vesting plan to retain your most important collaborators by offering them the most important asset of your company, your shares. These are some of the options you can consider to retain talent and reduce costs, while continuing to boost your business. Maintaining a strong team that continues to work in synergy can be key to moving forward in the face of the crisis.

Work on engagement with your clients

Startups should consider making a change in strategy to not consider investment as their only or largest source of income, but rather focus on obtaining capital from their customers. 

That is why it is important to work on constant actions that help strengthen customer loyalty. Times of crisis and recession will also affect people's consumption habits, and adapting to their needs and purchasing behavior to maintain them during this time can bring great benefits to your business, both in the short and long term.

Take care of your investment opportunities

We will probably see changes in investment behavior, with funds going to a greater extent to projects that have the capacity to demonstrate better metrics and greater profitability. So it is important to have your startup's documentation up to date, focused above all on the positive results of your business, ready to send in the event of any investment opportunity.

Also, you should consider that the amount of investment funds and the frequency with which they are available may be reduced. Stay tuned for available funds for projects like yours, maintain constant contact with its investors and review different opportunities such as acceleration programs that help you boost your business. 

We know that times of crisis bring many challenges for the entrepreneurial ecosystem, however, if we have learned anything in recent years it is the resilience of the ecosystem. So it is time to continue looking ahead with determination, to be creative and proactive, and to make way for the unicorn startups of this new era. Will yours be one of them?