Last night, I was sifting through my inbox, when I noticed a pattern.<\/p>\n
Mail 5: CEO of a $1m seed funded company informing me that they\u2019re shutting down shop since neither the Series A nor the bridge loan came through.
\nMail 67: Another seed-funded company planning to wrap up operations at the end of the month.
\nMail 96: A B2C startup with 1M active users but with no clear path to monetization. Unsuccessful in raising any money. Hoping for an acquihire, but planning for a shutdown.
\nMail 128: CEO of a well-funded seed-stage company (high single digit, in millions) had to sell because they\u2019d run out of money. It was an acquihire – so the team stayed intact, the product wasn\u2019t shut down. They consider themselves lucky.
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Should entrepreneurs be worried?<\/b><\/p>\n
According to CB Insights\u2019 annual report<\/a>, the first quarter of 2016 saw the lowest number of deals worldwide in nearly three years, down by 15% from Q4 2015. Interestingly, \u00a0according to another report<\/a>, Series A deals made up 48% of Q1 transactions, a level not seen in over a year. However, total dollars invested were the lowest since Q3 of 2014 for the U.S. Even Asian markets have taken a hit, with funding down 32% (in dollars).<\/p>\n <\/p>\n Yes, entrepreneurs should be worried.<\/p><\/blockquote>\n <\/p>\n VCs have less funds available. (No exits lately!) If they have a portfolio of ten companies, they\u2019re analyzing them, and backing the winners, instead of equitably distributing the available funds between all of them. Think of a mother picking favorites when there are five kids to feed, and food only enough for two of them. What can entrepreneurs do?<\/b><\/p>\n Raising funds is going to get even more difficult. Call it a correction or a normalization, the bottom line is that there are going to be more unicorpses than unicorns this year. Because, well, you will probably not be around for that round.<\/p>\n <\/p>\n If you are still building your MVP, don\u2019t invest in a sales and marketing team just yet, because they don\u2019t have anything to sell. Sad fact:<\/b> If you are running out of money in 2016, and KPIs don\u2019t look good – you\u2019re in trouble.<\/p><\/blockquote>\n I know the situation is difficult, but in the long run, this is a good<\/em> change. Evolution is at work. The strong will survive. This will make companies more resilient and will make sure the more deserving ideas get funded, and competition gets thinned. The capital to go around is limited, and with less startups clamoring for their attention, the money would be spent more judiciously.<\/p>\n However, if you\u2019re the ones left in the cold…stop worrying.<\/p>\n <\/p>\n Welcome to the graduation ceremony of the School of Hard Knocks. Learn from your mistakes, prepare for the next cycle, and come back with better ideas.<\/p><\/blockquote>\n <\/p>\n And if\u00a0you need a sounding board for those ideas, I\u2019m available on LinkedIn or\u00a0you can contact us<\/span> at sshroff@mystartupcfo.com<\/a>.\u00a0I run myStartUpCFO, a finance and accounting services company that provides on-demand CFO services.<\/span><\/p>\n Good luck!<\/p>\n
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\nHere are some tips for early stage startups:<\/p>\n\n
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\nIf your product is ready, see where you can scale back on the R&D spend, and put all that you have in your sales team. Lean in. You are guaranteed to NOT get traction if you don\u2019t invest in sales, so why not risk it?<\/p>\n\n
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