Many start-ups have to save massively – and are sometimes let down by investors.
(Photo: IMAGO/MASKOT)
Germany’s youngest generation of founders has to learn some ugly vocabulary: The “runway” quantifies the time for which the capital is still sufficient. The “burn rate” refers to the amount that is burned each month for ongoing business operations. “Fire sale” means an emergency sale. In 2021 there was still so much money on the market that the start-up founders didn’t care. On the contrary: Investors have trimmed their portfolio companies to focus solely on growth. No matter what the cost – and that was meant literally.
The mantra is now taking revenge. Not so much for investors. Especially for the founders and their employees. The tech stock market has turned around. There is nothing to be gained from young technology companies on the stock exchange in times of rising interest rates, high inflation and great uncertainty. And that suddenly changes what investors expect from start-up teams: They should be frugal. become profitable. Increase the margin.
For many companies, this is still going to be really painful. To put it bluntly: either a miracle will happen or the start-ups will face a massive wave of layoffs.
Start-up investors like to emphasize that their goals are in line with those of the young companies. Only in the crisis do some founders realize that this only applies to good times. Because in bad times it is not worthwhile to get every company through. More than ever, the focus is on the “fund returner”, i.e. the one company in the portfolio that can recoup all the costs and a high return with an IPO worth billions. For the others, some investors don’t even pick up the phone anymore. There is a new word for these companies: “orphan start-up”.
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There is enough money, just not for everyone
At the same time, many venture capitalists are making advances to very, very young companies. They announce new funds for early-stage companies. And they are bigger than ever. The calculation also makes sense: If these start-ups want to go public in five to ten years, the crisis will certainly be over. There is enough money there – just not for everyone.
>> Read here: Despite the crisis in the start-up world: venture capital funds collect large sums
The crisis is therefore also an opportunity for founders of new start-ups. Better than ever, you can now identify which investment company is really founder-friendly. Don’t be naïve: Of course, in the end, it’s all about the money in the start-up business. But answering the phone should always be included.
More: Despite the crisis in the start-up world: venture capital funds collect large sums