You Need to Do These 5 Steps If You Want to Survive the Difficult Funding Market The VC market took a beating in 2023, and the VC funding market is not going to reopen anytime soon. This article will teach you how to survive a difficult funding market like today, so you can live to fight another day.

CB Insights, a leading research organization that tracks venture capital financings, recently released its report on the state of the venture capital market in 2023 and, most recently, the fourth quarter of 2023.

Long story short, it was a terrible year for raising capital. The global market was down 30% year-over-year to its lowest levels in six years. The U.S. market fell to its lowest levels in 10 years, down 21% in the last quarter alone. Gone are the days of "unicorn" creation (companies worth more than $1 billion), mega-sized financings, and excessive valuations. And investors can't exit the investments they have already made in an anemic IPO market.

It is a pretty bleak picture if you are a startup raising capital today. So, what are you supposed to do to navigate these choppy waters? Buckle up and read on for useful tips based on my experience surviving markets like these.

Related: A 5-Step Survival Guide to Fundraising for a Niche Industry

Step 1: Batten down the hatches and cut expenses

Don't fool yourself into thinking your story is better than all the others and that you will have no problem raising capital. Once VCs put their heads in the sand, it is pretty much across the board, with a few exceptions if you happen to be in a hot market like artificial intelligence, fintech, retail tech and sustainability. So, that means you must get your expenses down to the bare minimum. And, yes, that most likely means making the tough decision of downsizing your staff to survive the storm.

It would be best if you focused on your core business (no side projects) and most profitable product lines, remembering that your marketing efficiency during a down market will also be negatively impacted. So take out your hatchet and chop off all non-core and discretionary expenses. And when you are done, if you do not have enough cash on hand to survive the next 18-24 months without requiring any additional financing, you have not cut enough.

Keep cutting until you get to that point, even if it means you are cutting into your "flesh" at that point. Because if you don't, you will never live long enough to survive and fight another day, which is the primary goal of this exercise.

Related: Making Your Pitch for VC Funding Means Facing a Very Tough Crowd

Step 2: Revise your business plan for a downside case

If your original business plan was to grow 50% per year, spend unlimited marketing dollars, add many new product lines, and expand into new markets, forget it. You must table that plan and dust it off in a couple of years.

For now, you are in survival mode. Focus, focus, and more focus is needed right now. And whatever assumptions you made in your original plan, cut them all in half. Your customer acquisition cost will double in a down economy, which means your revenues could be cut in half from where they are today.

So, focus more on getting additional revenues out of your existing customer base where you can. And, if you do not have any revenues from a specific initiative you are working on today, those should get zero attention in this market. Only focus on your highest revenue-producing product lines, and double down on those.

Step 3: Talk with VCs to learn their revised goals and keep networking

Just because investors are not writing as many checks does not mean you stop speaking with them, as they are still sitting on a lot of "dry powder" of un-invested capital. But when you approach them, instead of raising capital and asking for cash, you are asking them what they are looking for in the limited investments they are making today and getting their reaction to your revised business plan to see if you are heading in the right direction or not.

If they give you any constructive feedback or suggest pivots, listen to them and consider taking those actions if it will help you raise capital a couple of years from now. Once you and they are on the same page and you have set some reasonable goals for yourself, keep in touch with them and hit those goals.

VCs still prefer to invest in the best teams over the best ideas. If you can prove that you accomplished the goals you set out for yourself — a year after the fact — you will earn a ton of credibility with them when you re-approach them for a capital raise once the markets improve. You have over a year of relationship-building with them under your belt.

Related: 4 Crucial Indicators To Know Before Seeking Venture Capital Funding

Step 4: Seek alternative investors outside of venture capital

If you have cut all you can out of your expense base, and there is still a capital need, you will need to seek alternative investors outside of the traditional venture capital industry. This could be friends and family, angel investors, crowdfunding, venture debt, credit cards, asset-backed loans (e.g., securing inventory, equipment, real estate), revenue share loans, home equity loans, etc.

It is time to pull up your bootstraps and get creative in your potential funding paths. But focus on equity investments if you can. If you go down the debt path in a down market, it could end up being the noose around your neck, tightening with each month that passes.

Step 5: Think out of the box

If the venture capital market is closed based on a flight to higher quality investments, the private equity market may still be open for larger businesses raising capital. Maybe consider rolling up a bunch of companies into one bigger business, more of the size that private equity investors like.

For example, the VCs may not have liked your $1MM profit business, but if you merge with four same-sized competitors, the PE investors may like your $5MM profit rolled-up business. There are creative ways to enable those "mergers" in a cash-free way, based on pro-rata revenues or profits, and then help those additional shareholders get an exit down the road when raising PE capital. Roll-ups are a pretty complicated topic, so get some help if you decide to pursue this path.

When the venture capital markets close, it is critical to take actions like the above to ensure that your business does not close permanently! Make the tough decisions now to live and fight another day. Your current shareholders and future version of your business, built for the years that follow, will thank you.