How to Fundraise in Uncertain Economic Times with Matt Lyons

While job growth remains relatively strong, economists have been speculating about an impending recession since the beginning of the year. In fact, June was the worst first half of a year for the stock market since 1970. With the fastest inflation in decades and rising interest rates, many are tightening their belts, unsure of what comes next for the economy. 

For startup founders trying to fundraise, the economic climate means funding might be harder to come by. They may see that investors have a smaller appetite for infusing capital into high-risk early-stage companies. Austin-based corporate attorney Matt Lyons has seen startups and investors through decades of economic cycles, and he’s identified what helps founders weather these kinds of financial storms. 

Lyons is a corporate partner in the Austin office of Wilson Sonsini Goodrich & Rosati, where he focuses on representing emerging companies and their investors. On Sept. 27, Lyons hosted a webinar for Founders Network members where he provided how to fundraise in uncertain financial times. 

To learn more about how to fundraise in uncertain financial times, see if you qualify for membership and check out the webinar from September 27.

Here’s a preview of what he’ll cover in his webinar. 

Get creative about bootstrapping

During periods of economic uncertainty, it can be harder to secure angel financing, since individuals with wealth invested in the stock market can be hit particularly hard. As a result, bootstrapping – using personal savings or your company’s operating profits as early funding – is more critical than ever, Lyons says. To ride out financially tough times, startups should focus on generating revenue early and keeping costs low. 

Investors are also more likely to pull back on valuations during such periods, which means founders could be pushed to give away disproportionate amounts of equity at a very early stage, Lyons adds. 

“That’s another reason why it’s so important to extend [resources] through bootstrapping before you need to go seek funding,” he says. 

Time to focus on hiring

From free massages to lucrative options packages, companies race to the top in the extras they offer top talent when the economy is strong. But, when money is tight industry-wide, it can be easier for startups to compete for top talent. Employee salaries as well as candidate demands are coming down, Lyons says. 

“Talent is becoming a little bit more available than it was,” he says. “People aren’t having to go to quite the number of extremes that they were … But the founders have got to dig deep and protect the equity incentive plan and make sures that there’s enough available for people.”

Re-evaluate your budget

If you’re having trouble figuring out how to fundraise, you can extend your runway by taking a look at your budget and getting creative about what can be delayed or minimized. Maybe that means pulling back on trade shows and marketing. If your startup was valued before the economy started showing signs of trouble and you raised a lot of money at a higher valuation, it might be time to re-evaluate. 

“Do we need to take a look at the options in some of the pricing? Can we do some repricing? Can we go back out to our investors and increase the number of shares that are available and sprinkle some shares around among our employees while we cut back a little bit on salary?” Lyons says.    

Remember: everything is cyclical 

While it’s critical to respond effectively to changing market conditions, it’s also important to remember that periods of uncertainty and periods of stability are cyclical. Neither will last forever. 

Launching a business during a period of economic uncertainty is fraught with specific challenges, but it’s by no means impossible. According to Lyons, some great companies were founded during down market cycles, including technology systems company Cisco, which was founded in 1984. That’s because, during such periods, founders are able to commit their focus to a fledgling business. 

“I’ve done this a long time now. I’ve had the fortune or misfortune both of living through several economic cycles from the 80s to now,” Lyons says. “It’s people that are consistent and built to last that will outlast any particular market cycle.”

Lyons noted some venture capital firms have published useful guides for helping startups manage the current economic climate. For example, Sequoia Capital earlier this summer published a digital toolkit for the startup community with sessions like “Adapting to Endure” and “Extending Your Runway.”

In his webinar, Lyons covered:

• How to get creative with bootstrapping
• Why you should focus on hiring during tough times
• How to extend your runway by evaluating your budget

To learn more about how to fundraise in uncertain financial times, see if you qualify for membership and check out the webinar from September 27.