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Some advice from investors for business owners

A quick market review.    In a survey from the National Association for Business Economics, the median forecaster expects 2022 gross domestic product to rise by 1.8%, compared with a median projection of 2.9% in February. (GDP growth was 5.5% in 2021.).  The risk of recession is forecasted as up.  

The Silicon Valley investment firm Y Combinator sent guidance to its founders last week, and TechCrunch got its hands on it.

Here are some highlights.  Quote. 

No one can predict how bad the economy will get, but things don’t look good.

The safe move is to plan for the worst.  If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days.  Your goal should be to get to Default Alive.

It’s your responsibility to ensure your company will survive if you cannot raise money for the next 24 months. 

Remember that many of your competitors will not plan well, maintain high burn, and only figure out they are screwed when they try to raise their next round.  You can often pick up significant market share in an economic downturn by just staying alive. 

And the guidance on raising money isn’t good either – again, quoting.   If you are post-Series A and pre-product market fit, don’t expect another round to happen at all until you have obviously hit product market fit. If you are pre-series A, the Series A Milestones we publish here might even turn out to be a bit too low.

If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn.  Remember that your chances of success are extremely low even if your company is doing well.  We recommend you change your plan. 

While warnings for small companies, the news isn’t all bad – Protocol also reports that some VCs welcome the slowdown.      With prices and investment coming down, the speed of deals also slows, and “some VCs are relishing the chance to run a longer deal process compared to the breakneck pace of 2020 and 2021.”  That said, the startups themselves aren’t as excited.  The firehouse of money is over.  

Why do we care?

Tactically, just because the guidance isn’t for IT services companies doesn’t mean it’s not relevant.     Investors are telling their startups how to behave… which seems like handy guidance to any business owner.      They’re happy to slow down the money cannons – they can be more deliberate, and we’re back to basics meaning more in the market.   

The other takeaway is how clear the guidance is – choppy waters ahead.      And when choppy waters are in place, those basics are more important.   Focus there… and as Y Combinator says, focus on just making it.