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Uzone.id – Ever heard of a ‘tech winter’? It’s not exactly like the snowy season, but it’s a chilly time for startups. Think of it as a ‘venture capital drought’ where investors are less willing to fund new companies. They’re more cautious and want a higher return on their investment.
It’s a tough time for startups trying to raise money.
According to a CB Insights report, global venture funding dropped by 35 percent in 2023 compared to the previous year. This freezing era hit tech companies with layoffs becoming the norm as they scrambled to cut costs. Based on Layoffs. FYI, around 1.193 tech companies cut their costs by doing layoffs in 2023.
If you’re a founder or thinking about starting a business, it’s mandatory to know how to spot these cold times and how to survive them. Let’s start digging deep into this phenomenon.
So, what exactly is a venture winter?
A venture winter happens when investors get cautious. As a result, VCs stop investing as freely as they used to. They want safer bets, and risky startups don’t seem worth it. Why? Maybe there’s a recession, inflation’s high or big tech companies aren’t doing well.
Focus on Business stated that VC winter is a downturn in the Venture Capital industry, where investment activity slows down and startups struggle to secure funding.
Though it’s temporary, venture winter delivers significant challenges for early-stage companies that seek capital to fuel their growth and scale their businesses.
Sometimes, the tech world goes through a ‘freeze.’ This happens when investors get nervous, either because the economy is doing poorly, there’s too much competition, or a big startup fails. It’s like a cold snap that can slow down investments.
So, how to spot VC Winter?
Venture winter can be happening anytime, it’s not like someone announces, “Winter is here!” but there are some warnings when the tech world starts freezing.
Here are some early warning signs to watch out for:
- Decreased funding rounds: It; ‘s when companies are raising less money, and when they do, it’s taking longer time.
- Fewer funding news: It’s when you rarely hear news about startups securing funding, and the size of investment rounds may shrink.
- Layoffs and delayed hiring: you start hearing about startups that may pause or slow down hiring plans due to uncertainty. Worst, you start hearing news about layoffs at big startups or tech companies.
So, what are tips to survive this freeze season in venture capital?
Now that you know what’s up, how do you make sure your startup doesn’t freeze over? Here’s your survival kit.
Growth is important but focus on your profit first.
During tough times, profitability is way more important than growth. Investors are going to ask, “Is this company making money?” rather than “How fast is it growing?”
This doesn’t mean you stop growing altogether. But think about sustainable growth—growth that’s tied to real revenue, not just spending more to get more users.
Protect your cash and don’t burn it.
During a venture winter, cash is your best friend. If you’re burning money too fast, take your time to slow down and rethink. Companies that cut costs early during a downturn tend to survive longer.
Be creative and explore to find funding.
VCs might be more cautious, but that doesn’t mean there’s zero money out there. There are other ways to keep the lights on. You can start with bootstrapping, or finding angel investors and do crowdfunding to get money directly from the people who love your product.
Strengthen your relationships with investors.
Your current investors are your allies. Keep them in the loop. Share your plans for survival and growth. Some may offer bridge loans or extend your runway if they believe in your long-term success.
Focus on your existing customers.
At the end of the day, your business relies on one thing: your existing customers. Whether it’s venture winter or not, they’re the people who’ll keep your startup going. Keep your customers happy, and they’ll keep coming back, giving revenue when you need it most.
