Looking for investment in this market is like showing up to a party and realizing it's a funeral.

'So... not a good time? I'll just leave my business card by the casket!

How to Survive a Difficult Funding Environment

• Why Read: 

  • This article provides critical survival tactics for founders navigating a challenging funding environment, offering actionable advice on cost-cutting, investor communication, and exploring alternative financing options.

• Featuring:

  • George Deeb (@georgedeeb), Managing Partner at ed Rocket Ventures

• Link: 

  • “Lesson #360: How to Survive a Difficult VC Funding Environment”

Key Concepts and Tactics:

1. Cutting Expenses to the Bare Minimum:

   • "Don't fool yourself into thinking your story is better than all the others, and that you will have no problem raising capital. [...] So, that means you need to get your expenses down to the absolute bare minimum. And, yes, that most likely means making the tough decisions of downsizing your staff, to survive the storm… And when you are done, if you do not have enough cash on hand to survive the next 18-24 months without requiring any additional financing, you have not cut enough."

2. Revising the Business Plan for a Downside Case:

   • "If your original business plan was to grow 50% per year, spend unlimited marketing dollars, add many new product lines, and expand into new markets, forget it… Your cost of customer acquisition will double in a down economy, which means your revenues could cut in half of where they are today. So, focus more on getting additional revenues out of your existing customer base, where you can. And, if you do not have any revenues from a specific initiative you are working on today, those should get zero attention in this market."

3. Communicating with VCs and Networking:

   • "Just because investors are not writing as many checks, does not mean you stop speaking with them, as they are still sitting on a lot of 'dry powder' of un-invested capital. But when you approach them, instead of raising capital and asking for cash, you are asking them what they are looking for in the limited investments they are making today."

   • "And once you and they are on the same page, and you have set some reasonable goals for yourself, keep in touch with them and hit those goals. VC's are still prefer to invest in the best teams over the best ideas, and if you can prove that you accomplished the goals you set out for yourself, a year after the fact, you will earn a ton of credibility with them for when you re-approach them for a capital raise once the markets improve."

4. Seeking Alternative Investors:

   • "If you have cut all you can cut out of your expense base, and there is still a capital need, you will need to seek alternative investors outside of the traditional venture capital industry. This could be friends and family, angel investors, crowdfunding, venture debt, credit cards, asset backed loans (e.g., securing inventory, equipment, real estate), revenue share loans, home equity loans, etc."

   • "Time to pull up your bootstraps and get creative in your potential funding paths. But focus on equity investments, if you can. If you go down the debt path in a down market, it could end up being the noose around your neck, tightening with each month that passes."

   • "If the venture capital market is closed based on a flight to higher quality investments, maybe the private equity market is still open for larger businesses raising capital. Maybe consider rolling up a bunch of companies into one bigger business that is more of the size that private equity investors like."

   • "There are creative ways to enable those 'mergers' in a cash-free way, based on pro rata revenues or profits, and then help those additional shareholders get an exit down the road, when raising PE capital. Roll-ups are a pretty complicated topic, so get some help if you decide to pursue this path."

4 Tips to Improve Your Communication Skills

Why Read: 

• This article equips founders with powerful communication techniques to build trust, foster connections, and navigate challenging conversations.

Featuring:

• Kevin Rose (@kevinrose) Partner at True Ventures interviews Charles Duhigg, Writer at The New Yorker

Link: 

• “The Secrets of Supercommunication with Charles Duhigg”

Key Concepts and Tactics:

• Asking Meaningful Questions:

  • Advice: Ask open-ended questions that invite the other person to share more about their values, beliefs, and experiences, rather than just surface-level facts.

  • "A deep question is something that simply asks the other person about their values or their beliefs or their experiences. What are some examples of that? Oftentimes they don't appear like deep questions, like if your dad was an accountant and if I bumped into him and I learned he was an accountant I might go ‘oh did you always want to be an accountant? Is that something you dreamed of as a kid?’"

• Demonstrating Active Listening:

  • Advice: Actively demonstrate that you have listened to the other person by paraphrasing their statements or asking thoughtful follow-up questions, to build a sense of connection and trust.

  • "The key is to show you that I'm listening once you stop speaking. I need to prove it to you - in at Harvard and Stanford Business School and law schools they teach this method known as looping for understanding where I might ask you a question (preferably a deep question), listen to what you say and then repeat back in my own words what I heard you say. Or I'm going to ask a follow-up question that makes clear I was paying attention and that I'm processing."

• Fostering Reciprocal Vulnerability:

  • Advice: Be willing to share meaningful personal information about yourself, in order to foster a sense of reciprocal vulnerability and build a deeper connection with the other person.

  • "If you tell me something meaningful about growing up I shouldn't just interrogate. I should share some things about myself in a way that feels like ‘wow they just opened up to me,’ you know? That type of vulnerability that's absolutely right."

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