At Startup Daily’s recent 2023 Tech Playbook From Idea to Unicorn event, our expert panel discussed the state of capital from pre-seed to IPOs.

There’s no denying that 2022 has been challenging for startups, but there are some bright spots in some areas.

In general, there is a sharp decline in venture capital (recent statistics indicate 50 to 60 percent year on year), which mainly affects financing in growth phases. It may sound like depressing news, but as our panel noted, companies are still ramping up and there are excellent opportunities at every stage.

Here’s what’s coming.

First Andrew McFarlane, Mergers and Acquisition Partner at a global consulting firm BDO notes that IPOs have “fallen off a cliff,” but the team hopes they’ll bounce back in the new year. He notes that it’s in the pre-seed and series A rounds that they see a lot of excitement.

In fact, there was no doubt in our panel that there’s still a ton of momentum behind early-stage startups. “Valuations have not been hit as hard in the pre-seed and seed stages as they were in the late stage,” says Andrew. “That should give the founders some hope at that stage.”

Raaj Rayat, an investor at AirTree Ventures, agrees that despite this year’s overall decline, they have “done more seed deals this year than last year.”

“Most of the western world [has been in] the center of the greatest kind of monetary experiment that may have been in human history,” says Raaj. “There is so much capital flying around [and] markets reward sales growth above all else.”

Efficient growth is key

But as he points out, the focus has really shifted and now the markets are appreciating efficient grow. “Companies with a stronger unit economy, companies that use capital more efficiently,” he explains. “I think one metric that has really come into focus is the burn multiple. How much new revenue are you adding for every dollar of capital you spend?”

Samadi Pelenda, an investor at Tidal Ventures, who invests purely in the seed and pre-seed stage, supports Raaj’s emphasis on efficiency. “The focus is very much on extending the runway, having sustainable unit economics,” she says. “There is a strong focus on product-driven growth.” You need to be clear about the milestones you’re trying to reach for the next 18 to 24 months, or even longer.

“One of the most important things we look for in any company we invest in is that it can go global from day one,” she adds. “Australia is, of course, only such a big market and we would like to see it expand quite quickly and gain scale quite quickly as well.”

To get into that game, you need to keep your acquisition costs low and maintain your relationship and alignment with your investors.

Keep the relationship open

“It’s that open communication with current investors and starting new conversations early with potential investors for the next round,” advises Andrew van BDO, an Idea to Unicorn community partner. “It is important to take them on a journey.

“We talk to some of the founders and they say, well, we want to do a capital raise and we want it to happen in six months. We’re like, well, there’s a warm-up period here, guys… it could take up to a year and I think it’s important for people to get their heads around that.

From left to right: BDO Corporate Finance partner Andrew McFarlane, Tidal VC investor Samadhi Pelenda, AirTree Ventures investment manager Raaj Rayat and Startup Daily editor and presenter Simon Thomsen. Image: daily startup.

This is especially important given the unpredictable economy and uncertainty surrounding consumer spending. “I think a lot of startups [are] probably miss their forecast right now and maybe hurt even more next year,” says Andrew.

Right now the markets are tighter than ever, he says: “It’s super important to be more thoughtful and aware of what the cost structures are.”

Consider all financing options

In particular, Andrew advises startups to avoid down-round financing and look at bridging or other options before resorting to selling capital. “It should be a broader financing conversation than just capital raising… minimizing dilution in those earlier stages is super important.”

“You can really go a long way with bootstrapping alone,” adds Raaj. “So it’s important to think about and research any investor you speak to, whether it’s venture capital or income financing.”

As the dust settles around the current economic gloom, it may be worth putting the brakes on for a while. Andrew suggests that founders who “keep things going” during the current recession and “don’t keep chasing big growth goals”, on the other hand, “will come out much stronger if they see their competition fall by the wayside”.

BDO also sees more startups in the same area merging to meet the challenges. “I think we’re going to see more of that next year,” says Andrew.

Reasons to be optimistic

While the current market is challenging and the outlook uncertain, there are plenty of reasons to be optimistic. There’s “more dry powder than ever before,” says Raaj, with Samadi excited about the products she sees hitting the market. “Companies or VC funds are still raising,” she notes.

“Australia is the world’s most capital-efficient producer of unicorns, and… the world is taking notice,” says Raaj. “So I’m optimistic about the founders of ANZ… taking center stage and rising above their weight on the global stage.”

“The next few years are going to be pretty tough, but I think anyone who comes out on the other side will be in a very, very strong position,” says Andrew.

Would you like to know more about financing and scaling up? More information about View BDO’s services for startups and scaleups here.

Or check out the entire 2023 Tech Playbook From Idea to Unicorn session here:

Full details on the speakers below:

Idea for unicorn

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This article is brought to you by Startup Daily in collaboration with BDO.