Raising capital over the last 10 years has been relatively easy and inexpensive. This was due to the large impact of the 2008 financial crisis which led to low interest rates and cheap capital. Cheap capital triggered more risk taking from both investors and entrepreneurs, resulting in more debt and more risky assets in search for better financial returns.  Abundant capital led also to unsustainable valuations particularly in tech startups.  

From the regulation standpoint, the 2008 crisis led to unprecedented interest rate cuts and massive Quantitative Easing (QE) intervention from Central Banks, particularly in the US and the EU. QE strengthened bank reserves, provided banks with more liquidity, and encouraged lending and investment. As a result, the price everyone paid to borrow money was distorted leading to more risk taking.  After 12 years of distorted zero percent interest rates, cheap capital is gone, and entrepreneurs need to cope with higher cost of capital, and potentially tougher fund- raising.   

Fund-raise during a crisis?

A continuing decline in pre-seed, series A and series B capital raise in the United States is well understood. As an entrepreneur, it is important to learn how to operate during times of crisis and market volatility. While raising capital during or after a financial crisis is harder, there are ways to do it. If you’re raising seed investments to launch your startup, or if you need advice on how to fund-raise after 2 years of crisis, here are a few pointers that can accelerate your business growth ensuring that you secure strategic investments.  

Be creative finding the investors

I have argued that it is tougher to raise capital during a downturn. But I have also argued that there are billions of investment funds waiting to be allocated seeking disciplined entrepreneurs. Many investors are countercyclical, and many shrewd investors know that great investments are done during recession when businesses are suffering. The money investors hold in their banks is earning an insignificant return and what they’re looking for are investment opportunities that address today and future challenges. Crises are times to be proactive and be relentless investing in new connections and new relationships. Startups that succeed are those that “show- up”.   

Focus on sustainability and diversity

One of the differentiators that can help you fund-raise is to show that your company is committed to decarbonizing the global economy and integrating Environmental, Social and Governance (ESG) priorities in your business model. This means that you have a gender balance approach to staffing, you have a diverse board, and you are aiming to address society’s challenges. Believe it or not, ESG focused companies are more likely to get funded in the current market, as investors and consumers want more transparency, equity, and sustainability. 

Ignore the recession

Worrying and complaining about things beyond your control just makes you miserable and less effective running your business. Past crises show that the average Seed round size dropped during the 2000s dot-com bubble and 2008 financial and economic crises, but the total amount of money invested in early-stage startups increased. Overall, remember that the pandemic crisis wasn’t a crisis for start-up funding. Global venture capital more than doubled in 2021 compared to 2022, with most of the capital being invested in the tech industry. Having said that, smaller investment tickets will be more challenging, but good balance sheet discipline, product management and strategic planning should let entrepreneurs thrive during the ongoing crisis.   

Final advise

Even if you are convinced you need money to launch or expand your business, you probably don’t. Raising money should be your last resort unless you need capital to fund growth. Put in as much sweat equity as you can and grow your customer base as this is the best way to fund your growth. In other words, tap into every resource you must grow your business before you talk to a more speculative investor.


All information posted is for educational and information use only, and it should never replace professional advice. Should you decide to act upon any information in this article, you do so at your own risk.

Editors’ Picks

EUR/USD whipsaws on Thursday to end right where it started

EUR/USD whipsaws on Thursday to end right where it started

EUR/USD whipsawed on Thursday, briefly dipping back below the 50-day Exponential Moving Average (EMA) and tapping the 1.1000 level for the second time in a week.

GBP/USD holds in consolidation pattern as data beats expectations on Wednesday

GBP/USD holds in consolidation pattern as data beats expectations on Wednesday

GBP/USD turned lower on Thursday, shaving off a few points and keeping bids stuck to a near-term consolidation range just south of 1.3300 as markets got more or less what they wanted from economic data releases during both the London and American market sessions.

USD/JPY recovers toward 145.50 amid Japan's weaker Q1 GDP print

USD/JPY recovers toward 145.50 amid Japan's weaker Q1 GDP print

USD/JPY rebounds from weekly lows toward 145.50 in the Asian session amid the divergent BoJ-Fed policy expectations. The BoJ is widely expected to hike rates again in 2025 despite weaker-than-expected Japan's Q1 GDP print. In contrast, this week's softer US inflation figures boost the case for more rate cuts by the Fed.


Editors’ Picks

AUD/USD holds higher ground above 0.6400 amid fresh US Dollar selling

AUD/USD holds higher ground above 0.6400 amid fresh US Dollar selling

AUD/USD has picked up fresh bids above 0.6400 in the Asian session on Thursday. Renewed US Dollar weakness on fading US trade deals optimism overshadow bets that the RBA will cut rates next week. All eyes remain on US data and Fedspeak. 
 

USD/JPY recovers toward 145.50 amid Japan's weaker Q1 GDP print

USD/JPY recovers toward 145.50 amid Japan's weaker Q1 GDP print

USD/JPY rebounds from weekly lows toward 145.50 in the Asian session amid the divergent BoJ-Fed policy expectations. The BoJ is widely expected to hike rates again in 2025 despite weaker-than-expected Japan's Q1 GDP print. In contrast, this week's softer US inflation figures boost the case for more rate cuts by the Fed.

Gold price stalls recovery from over one-month low near 200-period SMA on H4

Gold price stalls recovery from over one-month low near 200-period SMA on H4

Gold price struggles to capitalize on the previous day's strong recovery move from the $3,120 region, or the lowest level since April 10, and attracts some sellers during the Asian session on Friday. The US-China trade truce for 90 days has eased some of the pressure on global markets and is seen as a key factor acting as a headwind for the safe-haven bullion.

Bitcoin and Solana decline as FTX plans to begin second wave of distributions

Bitcoin and Solana decline as FTX plans to begin second wave of distributions

Bitcoin (BTC) and Solana (SOL) saw a slight decline on Thursday, following an announcement from defunct crypto exchange FTX that it will commence its second wave of creditors’ distributions on May 30.

Why the UK’s first quarter growth surge looks strange

Why the UK’s first quarter growth surge looks strange

The UK economy roared back to life in the first quarter after stagnating through the second half of last year. Or did it? We're not sure the data is an accurate guide to what's going on beneath the surface.

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