Don’t fundraise in this market environment – Aboyeji
By Zion Rufus
Opposing the popular belief that a recession is a great time to launch and raise funding for your Startup, professionals, in a conversation led by entrepreneur and investor Iyinoluwa Aboyeji have advised founders against fundraising during harsh and volatile economic conditions.
“If you can please don’t fundraise in this market environment,” Aboyeji shared.
“This is not the time to raise capital. There is literally zero upside to you as a founder if you are trying to fundraise in this market environment. Capital is scarce and will only get more expensive as the full weight of the last two years of capital exuberance exact their full toll on Venture Capital. Even if you manage to raise capital you will be under a lot of pressure if you raise from typical investors (not us) who only care about making a financial return. This is exactly the moment when Venture Capital transforms to vulture capital.”
Compared to its meteoric increase in 2021, global startup funding fell 23% in Q2 2022, its highest drop in about a decade owing to challenging and largely unexpected economic headwinds heralded by the Russia-Ukraine war, post-pandemic effects, and sky-high inflation.
Akeyewale Rilwan Olatunji, a strategist, noted that entrepreneurs must learn now more than ever to find sustainable ways to take their product to market.
He stated: “Days of raising funds to tick off some vanity metrics are over. Revenue still is, and has always been, the best funding source.”
Validating Aboyeji’s premise, Emmanuel Oluwagbemi, Business Growth Strategist and Data Scientist pointed: “The current market environment is kind of crazy and it is important to test the model first with founder’s current financial capacity to see if that model will work pretty fine and is sustainable. If not, it is not too late to cut your losses. Fundraising can sometimes be detrimental to the health of founders and the company, so it is important to apply wisdom. Even angel investors will also expect more from founders. In this current market environment, only startups whose root of problem solving is very evident and addresses the pain point of their customers will stand the test of time and will be sustainable after all.
It’s time to divert your energy to operating a more customer centric business and let your revenue model provide the fund you need to scale by itself.”
On a similar viewpoint, Michaela Sorrentino, owner of Project Gnosis GmbH/ UK Ltd expressed: “This is some of the best advice ever offered to the volumes of entrepreneurial recruits being suckered into thinking it’s easy, or it’s better than working for someone else, or it takes money to make money. Grow a thick skin if you’re one of those people who fancies themselves a visionary, a change maker, an influencer of the good. Should Truth, Justice, Freedom, and the Good be your life path’s teachers, take heart. Be creative. Remember, necessity is the mother of all invention! And never ever do it for the money.”
Austin Okere, Founder, CWG Plc also advised: “If your business has not reached an inflexion point, if your business has not proved its concept, then venture capital money may not be for you; Except you are earning in the currency that you borrowed in.”
Exploring options founders can pursue alternatively, Aboyeji advised that the first step is an in-depth analysis of the business; what it will take for it to operate as a business that can sustain itself with its revenues and if possible make a profit while growing modestly; what product you have that is recession proof or even better recession friendly; and where you are able to make healthy margins because of inelastic demand.
Highlighting three choices, he shared: “If your business absolutely cannot work sustainably without venture capital, my advice is to cut your losses today, shut down the business and go work for a business that can be or is sustainable without venture capital; If your business has the potential to operate sustainably without venture capital but you must make some hard decisions to do so, then make those hard decisions today and move on. Cut product lines, cut people if you must. Do whatever it takes to be default alive; Ignore this critical advice and keep moving as you are right now as though nothing has changed in the wider market.”
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