What Is the Fundraising Situation for Startups In 2023?

Over the last decade, fundraising for early-stage businesses and startups has grown at a dizzying pace. Venture capital funds and angel investors have increased the flow of economic resources to emerging companies, enabling them to 

develop innovative products and services on an unprecedented scale. In fact, according to CB Insights, an international company that provides market intelligence, by the end of 2021 in Latin America, US$20 billion had been allocated to these types of companies, which is why we have seen the emergence, growth, and consolidation of startups, some of which have gone over the valuation of US$1 billion to become the first unicorns in the region.

However, the investment environment has changed drastically in recent months as a result of geopolitical turbulence, followed by the historical declines in financial markets and with that, the secondary effects on the global economy. This has led many entrepreneurs to ask themselves what fundraising for startups will look like in 2023.

Even though there is no certain answer to that question, we should start by putting ourselves in the shoes of investors, thinking about those determining factors that will be key to their decision to allocate their resources to companies or projects, since the way in which they invest in a stable or volatile environment will never be the same, due to the risks that must be assumed. 

Despite the fact that each investment involves risk — there is even a tolerance scale for it — at this time, investors may be looking for minimal risk, at least until the outlook is clear and there is certainty that the global context will bottom out and then reach the long-awaited break-even point. 

However, without being pessimistic, everything indicates that the period of uncertainty will continue throughout the year.  According to experts, an economic recession is looming in the US, which will impact Mexico and the rest of Latin America to a greater or lesser extent. Also, if we consider that geopolitical problems do not have an expiration date, it is likely that investors will adopt a more conservative approach when deciding where to invest their capital.

Among the factors that could be considered by investors before they invest money in a company could be if they have an established customer base large enough to keep them afloat, and whether or not they have a solid track record and a realistic projection for the future. These factors could weigh more on the mind of investors when thinking of a company, rather than the possibility of exponential growth in users that was key in previous years. 

This means that startups will face more challenges in raising capital, starting with the fact that Latin America is one of the regions with the most entrepreneurs globally, which will increase the competition for the now limited resources.

Despite this new and changing reality, there are some ways in which startups will be able to attract the interest of investment funds because even though the outlook is not encouraging for some, the injection of capital will not stop, it will only transform.

In this context, it is crucial that startups and their founders understand the importance of having relevant and usable data, as this information is essential since it allows them to make better decisions about the business, identify the market and consumer trends, predict user behavior, optimize processes and improve the efficiency of operations, which consequently reduces costs and increases profitability. 

Likewise, it will be very important to have a first-class team of associates, that is, people who are qualified, motivated, committed, and aligned with the company's objectives, so they can adapt quickly to the ever-changing environment of a startup. They must be able to identify and take advantage of the latest trends in their industry, technology, processes, and methodologies, which will allow them to work more efficiently, so they may impact the company’s profitability    

Similarly, it is important to keep in mind that we must continue to develop innovative products, of course, that meet the needs of users. Recall that the great success of startups has been in solving problems that have been left aside, focusing on people who have been left behind.

Although the raising of funds for startups has been affected, this does not mean it is over. Venture capitalists will remain on a constant quest to invest in startups with solid business models that can withstand the current situation; if these companies can demonstrate that they have a solid value proposition and a well-designed business plan, they will have plenty of opportunities to raise outside capital.

In conclusion, entrepreneurs need to be more creative in obtaining financing for their projects, as investors will be even more strategic in choosing where to place their money. Therefore, it will be necessary for everyone involved in the ecosystem to adopt a more flexible mindset, be patient and set realistic goals to ensure long-term success for businesses and their industry.