What might a recession mean for tech startups?

The tech startups market has been booming in the last few years. In 2021, London-based tech startups raised a record $25.5bn in venture capital funding, exit valuations rocketed and Silicon Roundabout was flattened by a Unicorn stampede. 

But with economists forecasting a recession later this year, what might this mean for tech founders on the journey from Seed to Series A and beyond?

Noise or signal?

What we probably won’t be seeing is investors continuing to focus on the top line and market share. Businesses like Cazoo will be an example familiar to many of us. Almost overnight their brand appeared everywhere, with huge sums of money thrown at advertising on everything from football shirts and stadiums to television and print media.

Evidently, investors have been happy, or at least willing, to plug the gap as they flooded the market with their brand, but with their market cap falling from $8billion to $722million, stock price plummeting from £12.63 per share to 0.99 and 750 jobs being cut, the investors’ appetite is running out.

Cazoo executives are blaming the recession and high inflation, while journalists are blaming their US float, but whatever the reason, is this case indicative of a shift of investor focus?

The bottom line 

Investors are still going to want to invest in tech startups but going into a recession, sustainability is going to be crucial. Investors are going to be much more interested in profit and cash than they might have been in the last few years, and looking to back genuinely sustainable businesses that can evidence sustainable growth and reliable revenues.

Tech startups that can demonstrate that they add real value are going to be in high demand and investors will have the opportunity to be picky about what businesses they back and to what value.

Key considerations

Sustainable and predictable revenue is really going to matter and making sure you’ve nailed your strategy for how to deliver that will be critical. Expensive hiring mistakes are going to feel even more costly.

  • Be clear on your strategy: Sales and marketing play a significant role in generating predictable revenues and a scrappy uncoordinated approach to sales won’t cut it.
  • Get absolutely clear on your proposition: Your proposition underpins your strategy and helps you identify your target audience, buyer personas, your pricing and its impact on revenues, sales cycles etc. It’s critical to really understand what value your product adds and to whom, to be able to generate predictable revenues.
  • Don’t abandon sales: If we’re being frank, a lot of tech startup founders don’t have sales experience and they don’t like sales. It’s why so many want to start hiring right away before they have an enabling structure in place. Founders need to stay close to sales in the early stages of growth to make sure they’re getting client feedback and building the sales playbook for their product.
  • Approach hiring with caution: Make sure you know what your goals are, what skillset you need your salesperson to have, and how you’re going to onboard and enable them in their first few months. They certainly won’t be self-sufficient from day one.

Sales for Startups helps B2B tech founders develop sustainable, predictable revenues. We take an integrated approach to sales and marketing working with our clients on their proposition, conversions, lead generation and team.

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