After a healthy fundraising round some months ago, you’ve got enough cash on hand to get you through the winter of 2022-2023.
But what happens on the other side?
Funds have continued to raise for 2023. There is a glut of “dry powder” in the market. And funds have continued to invest, because why wouldn’t they? We’re already in an investor’s market! It’s a classic case of supply and demand: right now, there’s tons of fund money available and startups are financially stressed. Stressed because inflation has raised operating costs, and their clients are facing the same issues. Everyone is looking for cuts to keep themselves financially stable. All the while, the next fundraising round is approaching, and startups need to prepare now to get a good valuation that signals their continued growth and future success.
Flipping the Dynamic
The most obvious and effective step you can take to improve your startup’s prospects when fundraising is to have multiple offers on the table–thereby flipping that supply-demand dynamic. Every startup would like to be in a position where they have VCs chasing them. But that’s a rare circumstance, one that no startup should count on.
To get your post-Series A startup in the best position for its next round, you’ll need to prove its potential for growth and continued profitability. That’s why mature startups focus on the same three business development areas: sales, marketing, and product. Concentrating on those three areas is the most widely accepted and widely proven recipe for success. But in this complicated economic and geopolitical context, the usual approach is not enough.
Savings within the Infrastructure
Now, to have a hope of flipping that supply-demand dynamic in their favor, startups must increase their value proposition. This allows them to raise prices and ideally increase their margins, while providing a compelling reason for clients to stay, and new clients to come aboard. It’s a viable solution, but it presents a new conundrum. How can a startup boost the value of its product and services, while maintaining a significant runway, navigating increased prices, and tightening their belts to–in some cases–survive? Where can they find the money necessary to not only maintain their business, but re-invest in it to scale?
Startups built on the cloud should look toward their technical infrastructure for savings. For those scaling with cloud service providers, technical infrastructure is a matter of operating costs–costs that will grow along with the business, as the startup consumes more resources. Young businesses must find the balance between a robust infrastructure that ensures good product performance for their clients, and optimized costs.
The market has already recognized this need and responded with tools to help. Kubernetes autoscaling, for example. Not only will it handle sudden influxes of traffic, but you’ll save money when you have fewer clients online and it automatically offloads resources. HashiCorp Terraform is another infrastructure as code automation tool, automating the infrastructure provisioning so resources are properly distributed across your production, development, and testing environments.
Time to Adjust
Keeping your data lifecycle optimised is also key to optimising costs. If you’ve been over-provisioning some resources, now is the time to check your metrics and see what needs to be adjusted. You can even turn unused resources off or put them on standby, to do your bottom line and the environment a favor. Finally, don’t forget to check your storage, as it can also be a culprit when it comes to unnecessary costs. If you can move storage to a less expensive class, now is the time.
Beyond architecture optimisations, startups should look to their ecosystem for support. International cloud service providers famously offer startups cloud credits to host their infrastructure on them, but scaling a startup on the products offered by an enterprise-sized company whose product offering was created for other enterprise-sized companies can lead to losses for a business just starting out.
Startups may have to commit to products with larger scopes than they really need, and pay for what they don’t ultimately use. Though this is not an issue when cloud credits make up for the inconvenience, this approach does not necessarily provide a long-term path to success. When the cloud credits finish, startups then have an unoptimized and often costly architecture.
So how can cloud infrastructure providers best support startups’ growth, whatever the market context? Innovative initiatives are emerging today, including Scaleway's 100 Startups Programme, empowering members to reinvest into their business, improve their value proposition, and thus gain a competitive edge. This is the sort of meaningful support needed in the startup ecosystem during this difficult financial winter.