Judgement Day
“Judgement Day” – a cartoon that illustrates how many startups are facing the dilemma of when to raise funds.
In good times, startups can delay raising capital and use the time to increase their valuation.
However, in a downturn, startups can either wait out fundraising and hope for improved economic times or take the hit of a lower valuation but get sufficient capital to see them through the challenging period.
For those waiting it out, the challenge occurs if they misjudge the length of the downturn, which could result in their valuations getting crushed or becoming terminal if they run out of cash.
Last week, Jamie Dimon the CEO of JPMorgan remarked that there’s a 20%-30% chance of a “harder recession” and equal odds of “something worse.”
In these circumstances, startup CEOs and boards need another hard look at the sustainability of their revenue assumptions (such as customer demand, sales cycles, churn and default rates), and then make intelligent decisions on their fundraising strategy.
