How to Raise Funds for Your Startup During a Recession

Kickstart your startup and partner with the right people to help you on your way, even when the economy has taken a downturn

If the 2008 financial crisis is any indication, the current economic recession, brought on by the novel coronavirus, is bad news for most startups. Back then, founders across the board reported raising significantly less capital, some as much as 30% less than expected. Their becoming more financially-efficient in the wake of a financial crisis was, of course, not their own decision. The recession led to less money being invested in fledgling startups, forcing them to simply make do with less.

That being said, the fact that we once again find ourselves enveloped in recession-related uncertainty doesn’t mean that it’s impossible to raise sufficient funds for your startup. Even though consumer demand and perception are shifting to meld with this new normal, the increased internationalization of markets, recession-induced low-interest rates, and other critical factors can provide secure footing for you to engage in – and even succeed – at fundraising activities.

The previous recession served as a springboard for startups focusing on the sharing economy: Uber, Airbnb, Convene, Yammer, and others. In Australia, signs of similar funding successes are beginning to emerge from the drudge that is the coronavirus pandemic. Software developer Canva successfully raised $87 million from venture capital investors, leading them to increase their overall valuation to an impressive $8.7 billion. Melbourne-based startup Openpay recently raised an extra $33 million during a funding round, and another e-commerce technology startup, Preezie, raised just over half a million dollars in seed as well.

Israeli startups – you too can achieve the same levels of funding success. All you need to do is learn a few tricks of the trade from startup specialists, like Highroad.

Optimize your cash position

With the economy experiencing a downturn, those businesses who have their financials in order and “in the black” are viewed as both appealing and promising by potential investors still looking to get their skin in the entrepreneurial game. As such, it’s time to be proactive and focus on your startup’s profitability. Before launching any new round of funding, see where you can cut costs and streamline your operations, while still endeavoring to increase your value proposition. Tough decisions will likely need to be made. You may be forced to eliminate side projects, pass on or freeze new ventures for the time being, restructure your team, or even drop under-performing business units to achieve your coveted cash position.

Remember, the stronger your cash position and the perceived value for money your startup can provide, the more likely you are to attract the attention of investors, who view your business as healthy and resilient. 

Study up and target well

It’s never advisable to turn to potential investors without doing your due diligence first. All the more so when the economy is in a recession. Engage in comprehensive research to identify high-quality investors with proven track records of funding startups in your industry, field, stage of your business’ evolution, and geographic location. Start by targeting local investors, to gain a stronger foothold on your home turf, but aim to target at least two, if not three times the amount of investors you’d usually approach. In good times, a very optimistic statistic indicates that only five percent of investors pitched to ultimately write a check (and that number will likely be lower in uncertain financial times). As such, the more investors you reach out to, the greater your odds are of securing funding.

Focus on closing deals

Ease on the traditional battle over your startup’s valuation for the time being. You need to raise funds now – and beggars, can’t be choosers. To close more deals, you’ll need to exhibit a certain deal of flexibility with your valuation, and that means temporarily relinquishing your upper hand and accepting a certain amount of dilution. 

Before entering into any negotiations, it’s a good idea to contemplate the various scenarios that could enable your startup to secure the funding it needs, even if the check is leaner than you’d hoped. Look to your competitors in local and international markets to see how they’re closing deals – and for what amounts. 

That said, choose your investors carefully. Not everyone who is willing to write you a check is the right partner for you and your company, so this is something to keep in mind, even on these hard times.

Partner with a partner that can really boost you, like Highroad

In good times and in bad, initiating and nurturing investor relationships is a smart, long-term investment, when done right. But if you don’t have a funnel of investors to reach out to, you have some progress to do beforehand, or if you’re looking to expand your reach and raise funds from new sources of capital, partnering with an active partner that knows the startup environment and has ties to industry movers and shakers is key, since it can really boost you fast.

Highroad Launchpad portfolio companies benefit from a tailor-made hands-on process, initial capital, office space, expert office hours, critical services, access to clients and strategic investors, and much more. Following an intensive, six-month cohort, startups are given the opportunity to present their venture to a group of handpicked exclusive investors and strategic partners and secure the funding they need to scale – even during a recession.

Click here to apply to our next cohort.