After the unstoppable tech optimism, the tables turned in 2022. With inflation rising and the economy slumping, Europe is peddling through an economic downturn that could last years. Startups have entered the most difficult fundraising climate in over a decade. Growth-stage startups, are trying to avoid to raise cash during this down-round era, with multiples (the ratio between the estimated value and the turnover or profit of a company, ed.) crashed comparted to 2021, and investors more conservative than ever. Young startups are looking into better, short term sales propositions, consolidating revenue and trying to extend their runway..

For Jürgen Ingels, Managing Director of Smartfin, a venture capital fund that invests in growing European technology firms this isn’t his first crisis to experience and a serial entrepreneur and investor. He emphasizes typical opportunities that arise from crises. His favorite 5 hands-on actions each tech startup should consider these days:

1. Perfect buy & build climate

With startup valuations dropping, it’s the perfect moment to dive into international acquisitions. You can buy companies with equity deals, so with limited cash-out. During the upcoming crisis time lef, you can focus on integrating their technology in your offering, accelerating your company as an international scaler, resulting in a post-crisis ‘winner group’.

2. Clean up your attic

Assess all your licenses, cloud solutions, marketing tools, contracts a.o. Get rid of those that just don’t deliver or are too expensive or just aren’t being used. You might be surprised of the total of licenses and the savings it will generate… .

3. Cash is king

Don’t wait for projections or results from your accountant to create your own day-to-day reports of your cash flow and balances. Make it a weekly or at least a monthly tradition to work on a graph that defines your revenue, checking and burn rate. This will guarantee no bad surprises and a ‘finger-to-the-pulse’ insight on cash flow behavior that hopefully will give you ease of mind.

4. Optimize your commission plan

Sales should focus on new clients more then ever. Your commission philosophy should be rewarding new client deals with a focus on payment when cash is collected. This crisis allows you to negotiate, reflect with the sales team on keeping sales performant.

5. Become a smarter, more efficient company

Research software and tools that profoundly save you and your teams man hours. The market offers for every company stage, useful sales, HR, accounting tools to unburden your team. Ideally this frees up time you can invest in the education of your team, especially when things are calmer.

David Dessers of Cresco, a law firm that specializes in growth financing is convinced that young, talented startups looking into seed or series A, will still be able to find funding: “Recently, many funds have been formed and funded with fresh capital to invest. They definitely see opportunities to invest, but obviously at lower valuations than a couple of months ago. These lower valuations are not necessarily a bad thing, and are recalibrating the market back’. Valuations had become ‘unrealistically high’ in recent years and the cooling has put a brake on the appetite of many investors to deploy capital in the foreseeable feature.

Certainly venture capital funds that deployed their capital at these high multiples are now incurring substantial paper losses and are feeling the pressure from their limited partners, putting a brake on their ability and willingness to invest," says Dessers. Founders of seed-stage startups must remain calm and plan for fundraising in a strategic manner during a period of great uncertainty.

Having lived myself through the dotcom crash and financial meltdown, I would encourage founders to take the following recommendations into account;

1. Be realistic on valuation

We see too many founders who have unrealistic valuation expectations, based on ARR multiples that have ceased to apply. Save in very exceptional circumstances, take into account the new world and apply a realistic valuation based on current multiples.

Raise less funding than initially planned so as to limit dilution during the seed stage, and adapt your growth planning accordingly.

2. Be creative with valuation adjustment techniques

Negotiate an adjustment of the valuation post-investment by agreeing milestones with investors which permit for the valuation recalibration in favour of the founders. Agree objective, measurable milestones which show your ability to execute on the vision.

3. Bootstrap your business

Founders must invest in their business by being willing to work for an extended period of time without income. Do not expect investors to agree to pay any salary for the period preceding the investment. The time and effort dedicated to the venture is an important part of your investment.

4. Ensure sufficient runway

Investors expect ventures to have sufficient runway after the funding for a period of at least 24 months without further funding. Build conservative budgets that permit you to achieve such runway and take into account that certain plans may have to wait until better days.

5. Alternative sources of funding

Be creative by using other financing techniques than venture funding. Try to have your clients fund the development of your products by using innovative funded development compensation techniques, and consider joint development in collaboration with others to share expense and innovate faster