The Startup Funding Market: What CEOs Need to Know After the Longest Bull Run

The Rise and Fall of Start-up Funding: Navigating the Market's Cycles

The startup funding market is like any other market - it goes through cycles of growth and contraction. After experiencing the longest bull run in history, CEOs have grown accustomed to a world where capital felt readily available, with investors offering the biggest checks and fastest closings. But the reality is that those days are over. With public tech stocks plummeting, the private market has felt the effects, particularly for later stage companies (series B and up).

The biggest challenge for CEOs in recent times has been the unprecedented rise in employee salaries. As the market was flush with capital, potential and current employees began to demand higher salaries, leading to massive inflation in almost every role. However, as capital has become less readily available, business models have not kept pace. If revenues and pricing for current customers are not growing at the same pace as salaries, operating margins suffer and profitability becomes increasingly difficult to achieve.

Facing the reality, it is clear that something needs to change. CEOs need to simplify their operations and find ways to increase revenue per employee and maximize the contribution of each team member. This can be achieved by:

1. Simplifying operations: Reviewing current projects and initiatives, focusing on those that will drive meaningful revenue growth in the next 12 months and considering delaying or removing those that don't.
2. Focusing on the roadmap: Prioritizing initiatives that are tied to clear customer requests that will drive new revenue and reduce churn in the near term.
3. Implementing instrumentation: Every department in the business needs to be able to identify and optimize productivity levers. This includes evaluating the number of customer success reps needed for every 100 new customers, and finding ways to increase efficiency from each rep.
4. Conducting talent reviews: With many tech companies now working remotely, it can be challenging to assess employee performance. It's important to have systems in place to identify key contributors and ensure accountability.

For companies burning through cash, every day that they don't optimize their financial performance makes it harder to raise more capital or reach break-even. There's no free lunch - even when capital was easier to raise, there were still expectations for performance and efficiency. Postponing the inevitable through easy capital raises just increases the likelihood that the founders' common shares will be worthless if and when the business is eventually sold.

It's time for CEOs to take charge of their businesses, simplify operations, focus on revenue growth, and drive return on the capital already raised. Don't rely on the capital markets to bail you out - instead, focus on delivering results that will attract the attention of investors, strategic partners, and talent.