Navigating Startup Fundraising in 2023

During the Venture Capital boom from 2014 to 2021, the startup ecosystem was on a perpetual bull run. This left firms with virtually unlimited funding resources and a shortage of venture-backable businesses.

Startups in this era enjoyed high valuations, and raising capital was a walk in the park.

Fast forward to 2023, and the landscape has tremendously evolved. Compared to the fundraising boom of 2021, the outlook for startup fundraising isn’t quite so sunny. Raising funds for your startup is no longer a given. The estimated odds of success for a startup looking to raise money is about 1 in 1,000. 

Asset valuation has become generally lower, and investors are far more scrutinizing—they want to know what your runway will look like given different scenarios, your unit economics, what it will take to be profitable, your go-to-market strategy, and much more.

These questions were rarely asked back in the day. Times have changed. Founders must be prepared for this new reality if they want to stand a chance at successful startup fundraising.

How Can I Raise Money for My Startup in 2023?

You may find a lot of advice about how to ramp up your chances of raising capital in 2023. However, having played in the VC industry for nearly ten years, one of my best tips would be to know your numbers.

Get familiar with all the metrics that impact your startup—net dollar retention, churn rates, customer acquisition costs, and so on.

In this environment, a key area of focus will be revenue retention. This should be positive—or neutral at a minimum—especially for a SaaS company such that upsell counteracts customer/logo churn.

Doing your due diligence with your numbers is incredibly important because it gives you more confidence to pitch your business. 

When VCs ask about your plans to grow their investment, you want them to feel assured that you have a clear and calculated path to growth for your organization.

Knowing your number also helps you narrow down how much capital you need to generate ROI, given your organization’s current position. 

As a growing organization, if you scale too quickly without understanding your go-to-market strategy, you could get bloated and burn a lot of money due to inefficiency—even if you’ve already established a product-market fit.

How Do I Get Into the Best Position Possible to Raise Capital?

Before you start pitching your startup to investors, it is crucial to get your business in the right shape to grow.

Start by setting your organization up to rely less on outside capital. 

During the early stages, you must stay as lean as possible until you’ve fully established product-market fit. This could mean working with a smaller in-house team or outsourcing other things like accounting and finance or content marketing. 

Investing resources heavily right off the bat could lead to over-hiring and an unnecessarily high burn rate.

You need to be sure you fully understand how your market works and how to generate ROI with VC resources before you move for funding. This gives you the confidence to show investors what’s truly achievable.

What If I’m Having Trouble Reaching My Next Funding Round?

Suppose you’re running out of money in six months, and you’re not sure you’ll be able to make the next funding round. What is your next line of action?

I usually receive similar questions from struggling founders. My best advice is always to cut down on running costs, as sad as it sounds. This may entail re-evaluating your workforce, reducing office supplies, negotiating lower rent, etc.

Next, you can meet existing investors and negotiate an inside round to bridge you. 

Combining this with cutting costs to an acceptable level should get you another 12 to 18 months of runway. During this time, you can focus on product-market fit and scaling until you get to the next level to raise from a third-party investor.

Another alternative is exploring debt products such as:

• Venture Debt
• Revenue Based Financing
• Working Capital Line of Credit

You need to be careful around these options because, unlike equity, these are loans, and they can cause significant issues if you do not pay them back on time or breach covenants. This should be a last resort that is only explored if you’re confident your startup’s growth will make it possible to repay debts reasonably. 

Navigating Startup Fundraising with Graphite

Raising capital in recent times has gotten more convoluted. Investors are extra inquisitive about virtually every revenue-impacting element of companies they invest in.

To successfully navigate the modern startup fundraising landscape, you need to not only know your numbers but also be able to present them in a structured, digestible way.

This can be a challenging exercise, especially for new startup founders. And that’s where Graphite steps in to help.

Graphite has a team of fractional CFOs, accountants, and entrepreneurs with roots in venture capital and years of experience helping startups raise capital, grow, and scale.

Here are some of the things we can do to help you raise funds:

• Ensure your historical financial records are clean and presentable.
• Develop a financial model that correctly articulates your organization’s narrative and what you’re set to achieve with the capital you’re aiming for.
• Offer strategies and support throughout the fundraising process. This includes helping you create a data room for due diligence, reviewing your pitch deck, or helping build one for you.
• Help you analyze all the important metrics your investors care about, specifically around unit economics.

If you have unique needs around startup fundraising or general accounting and finance, don’t hesitate to reach out to the Graphite team.