On October 21, 2011 at 10:20 a.m., I joined more than 8.5 million other Californians for the Great Shake Out, an annual earthquake preparedness exercise. Four hours later, the Bay Area was rocked by an earthquake measuring 3.9 on the Richter scale.
Even though we had just been trained for exactly this scenario, many colleagues didn’t know how to react: some panicked, others braced themselves in doorways, and some people just ran for the exits.
When the unexpected happens, no one knows how they will react. This also applies in a recession. Many budding founders think they know where to look first to save money or how to run, but as the saying goes, no plan ever survives first contact with the enemy.
Fundamental best practices won’t help your business this winter, so I invited M13 managing partner Karl Alomar to join me on a Twitter Space to discuss:
- Using “Relentless Prioritization” to Find Evidence Points
- Investors still expect ‘healthy growth’
- Why founders need to secure 24+ months of runway
- How do you talk to your investors about pivoting?
- When it’s okay to leave money on the table
- What else to do to raise money during a recession?
Based on his time leading startups through the dotcom implosion of 2000 and the Great Recession of 2008, Alomar said it’s critical for founders to be strategic, not reactive.
To secure financing at this point, you need to be a significantly better performing company. Karl Alomar, general partner, M13
Whether or not you feel like a leader, “the decisions you make in your company will affect all the people who work for you, so you need to be able to manage and communicate with all those stakeholders very effectively” , he said.
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Using ‘Relentless Prioritization’ to Find Proof Points
Alomar said M13 is working with founders to identify “points of evidence” that companies should execute before raising their next round.
“There’s a difference between proof points, which are things you have to build between rounds, and just business quality validation,” he said. These criteria vary, but may include product-market fit, engagement metrics, or specific initiatives that help achieve business goals such as ARR or burn rate.
“If you are a fintech company, you have to ensure a good supply of capital. If you’re a hardware company, you need to make sure supply chains work clearly,” he said.
In this normalizing market, Alomar said investors are looking for startups that make “incremental” improvements so they can reduce their risk from previous investments. As a result, everything is in order, including the composition of the leadership team itself.
“There are some companies that you think the founders are just the right people to build it up to until it hits real growth stages,” he said. “So if you’ve just done a round” [of] investment and you have a fantastic founding team, you may not have proof of management because people may already believe in your team.
But if you had a great idea, and everyone feels like there’s a lot of maturation needed in the business, one of your pieces of evidence might be, “Hey, we need to build a management team that can take this business to the next level. †
Investors still expect ‘healthy growth’
Despite the downturn, Alomar said investors have not lowered expectations when it comes to early-stage growth.
“Right now you actually have to perform better — more efficiently, more effectively,” he said. “To secure funding right now, you need to be a significantly better performing company.”
Janice has been with businesskinda for 5 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider businesskinda team, Janice seeks to understand an audience before creating memorable, persuasive copy.