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Corporate investors fill startup funding gap as VC firms pull back

According to investors, corporations are increasing investing for enterprise-technology firms despite a general slowdown in venture capital agreements.

The rebound comes as huge institutional investors such as hedge funds and pension funds abandon riskier bets on emerging technology businesses. Traditional venture capital firms are likewise reducing their investment in startups.

“But we’re seeing large corporations continue to invest,” Christophe Bourque, general partner at investment firm White Star Capital, said Tuesday at a panel at Collision 2022, a startup and investing conference in Toronto. “We’ve seen a lot of this across our portfolio companies.”

The Nasdaq Composite Index, which is centered on technology, fell to its lowest close since September 2020 last week, though it recovered 2.5 percent on Tuesday. Similar declines are reverberating throughout the startup sector, as many digital companies have shifted from hypergrowth to survival mode, eliminating employment and revenue projections.

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Seven ways you can financially prepare for a recession

What happens to startups during a downturn?

While downturns aren’t always bad news, you’ll want to do everything you can to maintain momentum. Remembering that this, too, must pass, here are some recommendations for surviving and thriving as a startup:

Reduce your burn time. 

In this type of frigid fundraising environment, startups should aim for at least 12 months, preferably 24 months, of runway. 

 Make use of conservative math. 

Assume that revenue will be smaller than in your previous strategy. If you want to reduce your burn, you need also consider the revenue side of the equation, which is also likely to fall. As a result, your cost side may need to be reduced more than you anticipated.

First, cut non-people expenses. Software, real estate, bonuses, marketing expenses, or non-necessities are examples of expenses.

Once, headcount should be reduced. Multiple rounds of layoffs are detrimental to corporate morale and can leave employees uneasy or furious. If you must make cuts, consider this as an opportunity to get rid of underperformers. While it’s an unfortunate and tough thing to do, keep compassion in mind.

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