5 ways investment-hungry startups can respond to the end of easy money

By James Taylor

Financial issues were on the agenda at SaaStock last month, with global economic challenges and their impact on investment appetite dominating conversations.

While European tech firms have enjoyed record funding levels in recent years, now is a challenging time to raise, particularly at a favourable multiple.

VC firm Accel published new data showing that $1.6 trillion had disappeared from the value of publicly-listed European cloud companies in the last 12 months, and funding for their privately owned counterparts was down 42%.

Several founders told me investors are unwilling to take a punt at Series A level right now unless firms can show at least £1m a year in recurring revenues.

Those that can are keeping a close eye on spending to extend their runway.

For startups looking to establish themselves and grow, the talk has shifted from growth at all costs to sustainable customer acquisition.

Sustainable does not mean stopping investment in marketing altogether. Many companies grow profitability in tough times, and MIT data shows those who invest wisely in a downturn emerge way stronger than competitors who slash growth spending altogether.

But it does mean focusing on value and getting the most from any spend on marketing and communications. There are five areas of focus we recommend:

1. Highlight the problem

Most startups fail because they can’t find a market – there weren’t enough potential customers who thought the problem the startup could solve was worth solving. Consider spending less time talking about your company and its product and more offering compelling new insight into the problems you solve.

2. Differentiate your brand

One of the most judicial uses of time and money for B2B tech companies is focusing on getting your name out there in a positive, unique and differentiated way. Prioritise opportunities that put clear water between you and your competitors.

3. Focus on profitable marketing channels

Yes, paid search and social ads can work, and they can work at scale, but they can also be incredibly wasteful. Take some time to understand the cost and reward across your channels (yes, for PR too) and focus on those that generate a positive return on investment in a relatively short period of time.

4. Craft a strong narrative

A powerful story with an emotional pull can be a deal-maker for customers and investors. Put time and effort into crafting the most compelling company narrative possible, with a powerful reason to exist and strong human story.

5. Show you’re a great company

Investors want to back companies they feel can become category and market leaders. There are 3 levels of belief game-changing startups must inspire to succeed, and certain attributes that great companies tend to show (detailed in the graphic below).