Where did all the funding go... Long time passing
Funding for pre-revenue startups has dried up to a large extent
this holiday season. And for good reasons. Here they are, at least the
- The economy: Stupid as it may see, the economy is actually
doing very well, but there is an election season on, so the side out
of power has to complain about something. Say it enough and it becomes
a self-fulfilling prophecy.
- The war: The War in the Ukraine is destroying availability
of inexpensive energy and food in Europe and thus around the world.
Economic leverage is key to the Russian strategy and devastating to
people who are shutting down their Nuclear power infrastructure and
forcing themselves backwards. The potential for escalation into a
global conflict makes people worry, and of course nuclear holocaust has
many folks just a tad nervous.
- Supply chain risks: Supplies largely from China are at risk
and slowing, first because of the pandemic with the China Zero
Tolerance before shutdown policy, and because of the threats to
Taiwan and the potential disruption of the global chip market. It's
hard enough to get supplies today, with year long waits for parts,
- It's all about the oil: Of course the autocracies of the
world have all lined up to reduce oil supply against the democracies.
Driving up the oil price drives up the gas price which drives up
shipping and delivery costs which drives up the price of everything
- Risk and reward: People take risks for rewards. As
companies struggle, the risks of failure increase and the likely
reward decrease. It's a vicious cycle. Less funding means more
failures means higher risk means less funding, and round she goes.
- BONUS: The Fed keeps raising rates: Increased interest
rates caused by so-called inflation associated with the problems above
mean that the folks borrowing to invest cannot keep doing it. Their
leveraging of low interest loans against real estate investments made
the 6-8% return very profitable when borrowing much of the money at 2%
interest. But when rates go up to 6% they cannot leverage and may even
get their loans called. So they don't have extra cash to invest in
But why does that slow investment in startups?
Because despite the long-term good average returns, when things go
bad you may need liquidity, and these sorts of investments are not
liquid in any sense of the word, not even over the period of a few
years. I am betting on your company to generate money for me in 2030
or so, and I may need the case next year. So I will keep it in
something that guarantees a return and lets me get out.
So what can we do about it?
Sell your way out of it. That's always the best solution.
Investment is fine, but revenue is better. Way better. We invited our
membership (15,000 or so of them) for a free discussion on how to sell
your way out of it. Not one of them took us up on the offer. To me
this indicates one of two things:
- (1) They don't get it that you have
to sell something to get money (even if it's selling investments in
your company), or
- (2) They are so depressed that they cannot handle
the concept of doing sales to survive and thrive.
In either case, it is a bad sign that entrepreneurs are giving up
on even collaborating to try to succeed.
A call to action
We help grow companies. But we cannot help if you do not ask for help.
Here's how you ask:
Get off your back sides and start selling. Nobody will save you if
you don't act to save yourself.
Fred Cohen, 2022 - All Rights Reserved