Raising Money in a Difficult Funding Environment
- Jun 21, 2023
- John Pennett
It’s no secret that it is difficult for startups to raise money amid scarce funding. At the end of May, EisnerAmper’s New York office hosted a Cereal Entrepreneurs Breakfast roundtable focused on the topic. Cereal Entrepreneurs is a networking group that brings together founders and startup CEOs.
- Laurel Touby, managing director of Supernode Ventures;
- Stephen Messer, co-founder of Collective[i]; and
- Andrew Weinreich, serial entrepreneur.
The roundtable fostered a lively discussion between the speakers and nearly 40 entrepreneurs and investors in the room, including those who shared success stories and failures. Here are some takeaways from the speakers:
- It’s easier to see who is a “true believer” in a down market. They are the funders, partners, employees and advisors who “want to be there,” and share in the founders’ vision. And that is different from those that ride the waves of overheated markets.
- Founders should not accept “normal VC terms.” Fight hard for founder-friendly terms.
- If a VC has done a deep dive into your business model, then they are genuinely interested. Cursory review or high-level comments often indicate little/moderate interest.
- If your company is having difficulty getting traction with the product launch, then there is likely a product/market mismatch. Go through the critical thinking steps and evaluation with an open mind (because it might mean you need to pivot or change a fundamental element of the business model).
- Beware of those investors who have a lot of money but have never made an investment in a startup. If someone doesn’t know your product, your market, or how to structure a deal, it will be really hard to get them to say “yes” to making an investment in your company. Think of them as a long close cycle with a low probability of closing.
- In a down market, ask your advisors for non-cash services and “founder-friendly service packages.” And if you do issue equity in lieu of services, make sure it gets documented and formally issued.
- Don’t forget about other means of funding your business such as debt, SBA loans, grants, factoring inventory or even taking a second job.
- Focus on your core competency and be willing to outsource the rest. When we can take some of the back-office tasks off the hands of the entrepreneurs – to allow them to focus on their mission - then we all have a better chance of succeeding.
Everyone learns valuable lessons from struggles, failures, successes and the sharing of such stories by entrepreneurs. And the stories of how the entrepreneurs overcame their challenges to achieve their goals is an inspiration.
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John Pennett is the Partner-in-Charge of the National Technology and Life Sciences Group and works closely with our IPO clients and their circle of legal and underwriting advisors to take an IPO from concept to close.
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