Can the uncertainty of economic headwinds ultimately prove beneficial to investors?
Those who use the environment to sharpen their focus can identify founders with the mettle to keep going in the face of all odds, argues Jeb Buckler, CEO of Startup Giants PLC.
“If they’re tenacious and confident, they can use this time to surge forwards,” he says. “The good element about tough times is that they always shine a light on the tough people – in business, this means that the highly motivated, tenacious and adaptable founders will not only survive, they’ll thrive.
“Predicting the mindset of new founders is usually a tough challenge; however, I believe it’s actually easier in uncertain times as the investor can see the founder’s attitude to change and adapting to new circumstances.”
Startup Giants provides investment for businesses at various stages of the growth journey – from seasoned entrepreneurs looking to IPO to new founders with a fresh concept.
Buckler says founder evidence carries more weight in a recession. “As [serial entrepreneur] Gary Vaynerchuck once famously said: ‘The most important thing in a recession is money in the bank.’
“People and businesses analyse their spending and tighten up their purse strings to survive a recession. Therefore the marketing, mission and messaging needs to work twice as hard to get them to open them and to ensure that if they do spend, they spend it with you.
“Investment spending is no different. Investors are being cautious right now until market valuations are stronger so if a founder presents themselves with strong letters of intent or sales already for their tech concept, it’s going to make a much stronger statement to potential investors in this climate that people want, need and are prepared to pay for their product or service.”
In terms of investing in startups, valuations are generally lower at the moment which poses better deals for investors.
“I think to get the investment over the line some of the investors are quite content to see that the founders are growing slightly less aggressively and experiencing growth in a safer, more sustainable way,” continues Buckler.
“If the company’s revenue is more consistent and the growth is stable then they view the company as healthy. Once again, management of cashflow and a founder’s mindset is essential to build trust for investment.”
He even sees a positive side to the mass layoffs currently being witnessed in the tech industry.
“The mass layoff actually helps another crisis – the skills shortage,” he explains. “This is actually a very positive and key time for people looking to recruit techies that they might not have had access to without the layoffs.
“Also, as we saw from the last recession, a number of techies that had been laid off used the opportunity to create their own businesses – Netflix and AirBnB to name a few – without having the constraints of full-time work and board members’ vetoing concepts.
“Whilst people may be grappling with layoffs, it might be a good time for founders to recruit and think of out-of-the-box ways to attract the techie talent to their door.”