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Tips for Raising an Investment Round Amid Economic Uncertainty

By Paulina Aguilar - Mundi
Co-Founder and CRO

STORY INLINE POST

Paulina Aguilar Vela By Paulina Aguilar Vela | Country Director and Co-Founder - Tue, 10/18/2022 - 16:00

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The right strategy and the creation of value can be key pieces to encourage investors to make another bet on your company, even in the midst of crises. The slowdown that some global economic powers are beginning to experience and the signs of a future recession have put two issues firmly within public discussion: the winter of startups and the exit of capital injections. 

The macroeconomic and geopolitical environment has a lot to do with these two concerns, as inflation is putting pressure on governments and companies, while high interest rates and a strong US dollar, which is at its highest level in 20 years, are putting the brakes on venture capital investments. 

The numbers already reflect part of this picture. In the second quarter of the year, US$2.246 billion was invested in Latin American startups, down 54 percent from US$5.353 billion in the second quarter of 2021; although the market still shows no strong signs of holding back. 

Even with these figures, there are other developments that show that investors want to continue betting on startups and that unlike other times of economic uncertainty, there is still liquidity to inject. The most recent example is that of KAVAK, which obtained US$810 million in a line of credit from HSBC, Goldman Sachs and Banco Santander for the development of its business model. 

Keys to Raising Investment 

Consistent valuations and successful investment rounds in 2021 are the starting point for benchmarking, as it was a year of economic rebound after the most difficult months of the COVID-19 pandemic. 

Now that the cycles have normalized and the numbers can be comparable to what was happening in 2019 before the pandemic, it is time to contemplate and add in roadmaps for times of lower activity and slower economic expansion. 

Working to prepare for the worst scenario or the worst crisis should be our main objective, as some experts assure that the recession has already begun, while others point out that it will emerge in 2023. 

Although private investment is expected to fall, this does not mean that liquidity will stop; the crisis is not yet of that magnitude and cannot be seen as similar to what happened during 2008-2009. Furthermore, it must be taken into account that although credit quality has deteriorated in some segments, there are resources that continue to enter the market, since demand continues and customers continue to access goods and services.

It should not be forgotten that times of crisis become opportunities and the main characteristic of leaders should always be the ability to adapt. The current times call for executives who know how to implement plans to reduce operating costs, even when this means minimizing the company's expenses. 

Along with this, leaders must understand that raising money from investors or financing cannot be the only way to maintain cash flow, so process optimization and maintenance of operations within the company are key. 

Do Results Matter? 

Raising venture capital is a combination of a startup's valuation, revenue and growth rates. So yes, maintaining results is key to continue raising financing in times of economic slowdown. 

But it is not about reaching and exceeding the growth rates of 2021, as even the best investors know that this may be an impossible task for most companies, and it is not for nothing that the stock markets are already undergoing significant adjustments. It is about maintaining good results and sustaining the majority of revenues, which become the reflection of healthy finances in times of crisis. 

Although we do not yet know what the movements will be like in the coming months, the only thing we can do is prepare and innovate. As mentioned, crises are the best time to grow and do things differently, but that should not stop our production rates or medium and long-term goals. 

The outlook may not be the best — the world economy could grow only 2.9 percent% this year according to the World Bank — but the situation should be taken advantage of so that startups, which base a large part of their work model on technology, can boost their businesses and focus on the fronts that are a priority for their growth. 

Of course, it is not known what full impact a recession will have on the ecosystem until it occurs and investors unveil their next steps but, for now, the generation of confidence and profitability must be the key to attract investments. 

If you want to start investing, do it; however, we recommend you investigate the market and its movements in recent months. Although the intention of investing is the increase of assets, it must be remembered that investing is a bet on the future and anything can happen. Invest, innovate and grow; anytime will be a good time to do it. 

Photo by:   Paulina Aguilar

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