By Chandan Deep, Anubhav Vardhan and Mehul Garg

2022 was a difficult year for the tech startup ecosystem, given the turn of the market cycle, and 2023 is expected to have elevated uncertainty as well. Amid reduced growth expectations, companies continue to dial-back cash burn and focus on efficiency.

However, the fact remains that some of the most incredible companies of our time were built and scaled during such times of tech dislocation. From past downturns, we know that moments of adversity are when strong businesses pull ahead, with a BCG study by the BCG Henderson Institute highlighting that 14% of companies improve growth and margins during these times.

A majority of tech founders we speak to believe they will accelerate and outgrow competitors in the coming downturn. However, there are three big questions startups need to address as a part of their growth strategy.

While there is no singular one-size-fits-all approach, here are some guiding principles.

Efficiency: How Do I Grow While Conserving Cash?

“If you want to fly, give up everything that weighs you down.” – Toni Morrison

Enough and more has been shared and written about extending cash runway, relooking at cost bases, and reviewing areas of efficiency. While cash burn line-item management is a good first step, tech startups need to have a holistic re-think across all business initiatives and ruthlessly prioritize. During the last few years of growth, some companies seeded newer and emerging bets at all costs, such as entering new geographies, verticals, and product features. We recommend a portfolio approach, and to evaluate all business initiatives across two key axes: revenue generation and expected cash burn – a sample framework is highlighted on the right.

Re-evaluate newer and emerging business bets, with clear milestones across the non-core offerings and investments, and deprioritize or exit as necessary. Double down on your core business and go deep. This is also an opportunity to invest and strengthen the talent pool – startups with strong balance sheets have a big talent access advantage and a relative edge in market competitiveness in markets like these. Critical analysis of where the organization needs to move to and gaps will help founders build a stronger team and hire leaders who you may not have had access to in the past due to the market context.

Planning: How Do I Plan and Track Progress Given the Volatility?
“In the business world, the rear-view mirror is always clearer than the windshield.” – Warren Buffet

Given market volatility, we recommend stress testing the business model and forecasting across a range of scenarios of growth and investment over the next year. It’s important to build this in your annual plan and adopt a forward-looking, long-term agenda to win. For example, the three scenarios could be Conservative [‘Survive’], Realistic [‘Perform’], and Optimistic [‘Thrive’], and could take into account revenue growth, operational cost management, investment into R&D, or M&A – a sample framework is highlighted below. Align your core team on scenarios and get the board’s buy-in on the different options. Equally important is tracking leading indicators across each of these scenarios at a bi-weekly and monthly cadence to quickly adjust spending and investment in response to performance and manage burn. For example, in a B2B business, track leading metrics on a weekly basis such as the number of client meetings per week by key accounts teams, coverage of key accounts per week, and conversion rates for your pipeline.

Note: example scenario planning with XX months of base runway and +6/-6 months runway impact assumed across various scenarios.

Fundraising: How and When Do I Raise My Next Round and Consider Alternate Paths?
“Opportunities multiply as they are seized.” ― Sun Tzu

Fundraising is an essential driver of growth for tech startups. With IPO markets depressed and fundraising cycles elongated, founders should continue to foster relationships across all relevant sources of capital. One of the most important rules of fundraising is to raise capital when you can, not when you are forced to. In that vein, we recommend starting conversations when cash runways remain healthy, especially as we are observing that fundraising can take materially longer in the current environment, even for well-performing companies.

We would also recommend companies be open to alternatives beyond an IPO. Identifying and building relationships with relevant strategics who can help founders synergistically grow their companies beyond their current scale can be a great first step. The potential partners can include not just domestic players pursuing the space but also international companies that may be looking to enter new markets. Partnerships such as joint GTM or product integrations can be a good place to start to seed some of these future conversations.

In summary, fighting the wind will not be a strategy for growth and success for tech startups in 2023. Instead, it’s time to embrace the direction that the market is taking and use this time to ruthlessly prioritize, focus, plan with agility, and take a long-term view on path-to-profitability and eventual outcomes. We are excited as 2023 and 2024 will prove to be one of the best times in history to both build and invest in tech, and we remain committed to operationally engage as value-added investors to our portfolio.