How founders can prepare for 2023 even as markets fall apart

The markets have been falling apart for the last few months, as everyone in the startup ecosystem knows. It’s a scary time for many, so I want to share what I’ve been doing as a fund manager in recent weeks.

Talking candidly should be illuminating for both founders and investors out there, and hopefully, they can find these practical tips useful for navigating the coming months.

Manage your cash

Image credit: Timmy Loen

Many investors have been sitting on the sidelines, especially at the pre-A stage and beyond. It means that companies that failed to make drastic cuts six months ago are now scrambling.

Although Hustle Fund was supposed to be closed during Thanksgiving, we were busy helping companies in a cash crunch find money from literally anywhere: other investors, inside investors – or by moving expenses, cutting more costs, etc.

Unfortunately, I think things are only going to get worse in the first quarter of 2023. Companies on track to run out of money in January or February will be in a tough situation.

There’s only so much cash that inside investors have to support their companies. External investors are looking to back companies with a runway. Revenue is an even harder nut to crack – everyone is tightening their belts.

I’m not trying to scare you; instead, I want to help you with cash management and planning. If you think you’ll be out of cash in Q1, you’d better make drastic cuts now, even if it means pausing growth and just staying afloat for a few months.

This market favors frugality and people who are good at cash management. If that’s not a strength of yours, find someone who can help with your financial plan, even if it’s only for a few hours.

Everyone’s feeling the pain

In these new market conditions, VC funds will also face more scrutiny in their audits. And service providers are blowing up left and right, as we’ve started to see.

We had to switch out our back-office providers in the middle of this market chaos. We’re not the only ones – plenty of fund managers are going through the same thing.

This means that fund managers have less time to do new deals because their top priority is figuring out their own business providers and working with their existing portfolio to stay afloat.

In addition, a lot of fund managers are fundraising right now, and it’s taking a lot longer to close money for funds. Startups aren’t the only ones in pain. It’s all up and down the capital stack.

Time to overcommunicate

Needless to say, a ton of people in the startup ecosystem are incredibly nervous about the market landscape. Newer investors have never faced this situation before and don’t know what to do.