Founding a company during economic uncertainty and excelling takes more than just a hungry founder with a good idea. It requires a solid foundation to withstand the market. Companies founded today must focus on becoming profitable while growing, which is only sometimes a priority for companies receiving aggressive VC funding. In the pre-revenue stage, profitability has sometimes been top of mind, but keeping operations efficient and focused is vital for maximizing the potential for monetization.
Investors are engaging with fewer pitch decks from founders, according to DocSend data — investor activity dropped less than 2% year-over-year (YoY) from 2022 and 4% from 2021. However, investors are still reviewing pitch decks at a higher clip than 2020, proving there’s a market for early-stage deals, even though funding was down 27% YoY in Q3.
Every market has its opportunities and challenges. Just a few years ago, a founder’s market led to “zombie” companies raising money at unrealistic valuations with a “growth at all costs” mindset, proving there are pitfalls even in a highly founder-friendly market.
Now that investors have pulled back to level-set, founders need to prove their company is built to last with long-term profitability and scalability in mind. Historically, this follows suit with Big Tech companies like Google, Microsoft, and Adobe, which were all at or near profitability when they went public.
There will be founders who fail in 2023, but there will also be founders who succeed in ushering in the companies that define a generation.
Instilling solid building blocks for the company’s foundation is even more critical in a tighter economy and investor’s market. Some of the most innovative companies in the world were started during economically challenging situations, and those companies were built to withstand the market they were entering.
The next generation of companies that define the market will operate with the same integrity. A strong foundation helps raise early-stage capital and will help the company scale when appropriate and reach further stages of its life cycle. In the days of growth at all costs, being profitable or keeping an eye on unit economics were often ignored or disdained. That has now clearly changed. For founders now, perfecting the pitch, having an efficient sales strategy, and scoping the product with urgency will create a strong foundation for success that attracts investors.
