Startups

Survival guide for startups facing the crisis

27 Sep 2022

Over the last few months we have heard talk that the global economy is heading towards a possible recession. After the socioeconomic situation we have witnessed in recent years, changes in different sectors have been felt, and the startup ecosystem is definitely one of these sectors. In his e-book "How to finance yourself in the new macroeconomic environment"Since the 2008 crisis, UpBizor experts explain that governments and central banks have been promoting an expansionary policy to stimulate the economy. This policy took on greater force during the Covid-19 pandemic, which generated excess 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 translated into higher prices and accelerated inflation in 2022. On top of that, rising interest rates, the container crisis, and the effects of conjunctural events such as the war between Russia and Ukraine, are triggering a stock market crash. And what does all this translate into for startups?

Overview of the startup ecosystem

During the pandemic, many startups and technology-based companies saw tremendous growth from the change in consumer behavior, which greatly increased the use of digital platforms and tools to adapt to the needs of day-to-day life in this context. These consumer needs, and the expansive policy that gave greater liquidity to investors, 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 there was a record breaking amount of money invested in VCs. With changes in the global socioeconomic situation in 2022, investment in startups has suffered a drop over the past few months. According to a recent Crunchbase reportIn August 2022, global investment was $25.2 billion, the lowest month for investment in the last two years. So fewer startups are raising investment at all stages.  It is anticipated that the startups that could be most affected by these changes are those that are at more advanced stages or are looking to go public (IPO), as they may have to do so at lower valuations than they might have had in previous years. As for startups in the early, seed and pre-seed phases, what can be expected is a less accelerated growth than those in this phase have seen in recent years.

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 this year. 
»The low points are better than the high points for investing, but also for entrepreneurship» -UpBizor
Times of crisis can become a great opportunity for the startup ecosystem, both for entrepreneurs and investors. If a startup starts at a time of low valuations 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 global startups were founded, such as Airbnb, Whatsapp and Uber.  Here we share with you some recommendations to continue promoting your startup in times of crisis:

Maintain a strong team

In the last few weeks we have seen numerous news reports about staff cuts in international startups as a measure to reduce the costs they are having to make.  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 cut back, review your processes and consider options that will help you reduce costs without losing your team.  A change of positions that allows you to leverage talent within the areas that generate the most revenue for you, or a plan of vesting to retain your most important employees by offering them your company's most important asset, your shares. These are some of the options you can consider to retain talent and reduce costs, while continuing to drive your business forward. Maintaining a strong team that continues to work in synergy can be key to getting through the crisis.

Work on customer engagement

Startups should consider a change of strategy to not consider investment as their only or major source of income, but focus on raising 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 buying behavior to keep 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, and funds will go to a greater extent to projects that have the ability to demonstrate better metrics and higher 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 be sent to any investment opportunity. You should also consider that the amount of investment funds and the frequency with which they are available may be reduced. Keep an eye on the funds available for projects like yours, maintain constant contact with your investors and review different opportunities such as acceleration programs to help you boost your business.  We know that times of crisis bring with them many challenges for the entrepreneurial ecosystem, however, if we have learned anything in recent years is the resilience of the ecosystem. So it's time to keep looking forward 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?

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