- May 17, 2022
By Hasan Haider
Some of the biggest names in tech (and other industries) have announced massive layoffs in anticipation of a global recession. In other words: the economy isn’t doing so great! Startups can expect to face challenges with fundraising, a drop in valuations, and a higher churn rate, for both B2C and B2B startups.
So how can you, as a startup founder, ensure that your startup survives?
While surviving economic downturns is vital, you didn’t get into the startup game merely to survive, right? You’re not looking for a stable job or a steady income. You’re looking to change the world (or at least our corner of it!). And that involves having ambition, vision, and the perseverance to see your vision through. The startup life is full of uncertainty, which you probably know by now! Those who make it big are the ones who thrive in times of uncertainty!
Let’s look at what you can expect in the next year (or more!):
First: The Fundamentals
Great startups aren’t based on great ideas. They’re based on real needs, and a real way to make real money. And most importantly, on great execution. Convincing investors to invest in you isn’t an achievement. It’s a responsibility. Before you worry about fundraising, you have to ensure you’ve got a business that can make money, and the numbers to prove it. If you have that, then investors are more likely to invest in your business and your business is more likely to grow, no matter what economic climate you find yourself in.
Having said that, you should also consider offering a product that is:
- Tied to a human need that doesn’t go away (food, health, communication, logistics, etc)
- Marketed in a way that helps consumers or businesses make money or save money (otherwise it becomes hard to justify spending money on it when money is tight)
Investors are looking to invest, but you need to convince them that you have something going for you and you will continue to be relevant and valuable to your target market during the downturn.
Looking to Raise Funds?
If you have an early stage startup in the MENA region, you should be fine for the next year when it comes to funding activity. Local VC funds still have capital to invest, and they’ll be on the lookout for investment opportunities. Make sure you have impressive growth metrics and a clear strategy for weathering out the storm, and you should be good in the current climate.
Later stage startups will likely have a harder time raising Series B and C rounds in the region. That’s because most investments being raised to date at that stage comes from international investors that are retrenching and will likely stop, or significantly slow down, deploying capital in MENA. This is one of the reasons why I believe the MENA startup ecosystem needs to develop its entire funding ecosystem to ensure bigger startups can continue to get bigger, even during downturns.
In general, we’ll be seeing startup valuations drop, which can be a healthy market correction. Startups that were raising $2m seed rounds at $10m post-money valuations will likely fall closer to $5m-6m post-money valuations (psst… don’t know what post-money means? It’s just a fancy way of saying a valuation that’s after – and including – money from investors).
Economic downturns can be both a blessing or a curse, and how you position your startup will play a major role in determining whether you’ll experience smooth sailing or come crashing down.
Think you have what it takes to thrive in this economy? Do you have the numbers to back it up? Or do you need help making better decisions in the weeks and months to come? At Plus VC, we’re committed to helping MENA startups thrive, whether through funding or offering practical, no-fluff advice. Get in touch and let’s see how we can add value to your startup.