March 22, 2023

Faced with tougher funding conditions, these are the options for startups in 2023

How can startups raise the money they need to survive — and thrive?


5 min read

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Copyright: HEC Paris/Hadrien Rose

Where 2021 saw record-breaking amounts of cash flooding into European startups, the environment in 2023 is starkly different. Russia’s invasion of Ukraine and a struggling global economy have led to sky-high inflation and increased interest rates.  

A recent victim was Silicon Valley Bank — the bank used by nearly half of VC-backed startups in the US — which was shut by US regulators last week after a failure to raise more funds. Its UK counterpart was bought by HSBC but questions — and the hangover — remain. 

This poses a tricky question for Europe’s startups: in a tougher funding environment, how do they raise the money they need to survive — and thrive?


Don’t believe the market is entirely bleak 

According to Atomico’s State of European Tech report 2022, just 31 new unicorns were minted in Europe in 2022 as the absence of megarounds took its toll on European tech valuations. 45 unicorns were also “de-horned”, as their value dropped below $1bn — meaning Europe has fewer unicorns now than when the year started.  

“Valuations have dropped quite significantly,” says Valérie Gombart, founder and CEO of Hi Inov, a European B2B VC fund, to around “40 to 50% compared to the peak at the end of 2021”. But this, she says, is actually a good thing, as Gombart views that year’s bubble as “stupid”. 

Startups should revise their strategy to focus more on profitability, limit expenses and prioritize a strong market positioning

Regardless, Etienne Krieger, affiliate professor at HEC Paris Business School, adds that startups that are aiming for hypergrowth in order to IPO should consider re-strategising.

“In a context where valuations have been divided by three in a year, startups need to revise their strategies,” he says. “Startups differ from SMEs due to their rapid growth rate and technical and commercial demonstration of exceptional value propositions to address a considerable market.  

“Startups should revise their strategy to focus more on profitability, limit expenses and prioritise a strong market positioning,” he continues. “In other words, startups may focus on lean operations, cost control and revenue generation to weather tougher economic market conditions.” 

But while VC funding isn’t at the level of recent years, that doesn’t mean it has dried up completely.

“Good startups get funded,” says Gombart. She believes that companies with a “visionary CEO”, strong revenue and a water-tight business model will still get funding in 2023. 

Bootstrap to success — or search for subsidies

But not every European startup will be immediately able to meet the harsher requirements VCs have for funding in 2023.

Good startups get funded

These businesses — the ones Gombart describes as having “slower growth” of around 10-20% a year that are “burning too much cash” — may struggle to raise funds. This is where bootstrapping, the process of getting started solely with savings (and sometimes borrowed/invested funds from family and friends) and revenue you make yourself, comes in.

For startups where bootstrapping alone won’t do, it’s time to look towards government-sponsored funding. One company this strategy proved successful for is Quandela, a French quantum photonics firm.


“Quandela received support from the EIC (European Innovation Council) fund,” cofounder and CEO, Valérian Giesz, tells Sifted. This fund provides equity ranging from €500k-15m for companies working on breakthrough technologies.

There are often local options available too. “For example, in France we have Bpifrance,” Giesz continues, saying that these subsidies are important as Quandela is able to “leverage [this investment] with private VCs” in order to secure more funding.

France was the one major startup ecosystem in Europe that saw startups raise more money in 2022 than in 2021. In January, Bpifrance announced it’s pumping another €500m into deeptech startups. 

Similarly, other governments have been on the case. Earlier in March, the British government announced a new £360m plan to increase investment in innovation, attract talent to the UK and position the country as a “science and technology superpower by 2030”. And in Germany, the government unveiled a new €1bn fund for deeptech and climate tech growth-stage companies, to boost startups in Europe’s largest economy. 

Grab the accelerator all-access pass

If a startup struggles to get funding from VCs or subsidies, that doesn’t mean it should give up on these avenues. Instead, it may be time to look towards an accelerator to help streamline its proposition, hone business skills and open doors to VCs and subsidies that were previously closed. 

For example, Quandela was in the HEC Challenge Plus programme in 2017, a programme hosted by business school HEC Paris. 

This helped Quandela build a “strong business plan”, says Giesz, and create a startup that had “a clear view about how to [approach] VCs and investors”.

Giesz adds he believes the programme helped transform Quandela from “a band of scientists into entrepreneurs”. 

In December, Sifted counted more than 400 accelerators in Europe.

Take the path less trodden

If none of the above works out, startups shouldn’t fret — there are other options too.

Many startups are not yet profitable at the time of their acquisition

One of those is a merger or acquisition (M&A). While this is a potentially fruitful way to raise funds, it’s not a quick fix either. As Gombart from Hi Inov explains, not only does an M&A take far “more time than a year ago”, the current economic market is geared towards buyers. This means startup valuations may be far lower than founders are comfortable with.

“Many startups are not yet profitable at the time of their acquisition, and the median acquisition time has increased from seven years to nine years between 2020 and 2022,” adds Krieger. 

Another route is venture debt, a method that’s growing in popularity due to the scarcity of cash on the market. 

Gombart believes it can be useful in certain situations, but the problem comes down to “interest rates [being] very, very high.” This can consume a lot of cash if startups are operating in the millions.

The danger comes when funding stutters, “because if you're not able to raise the next round, then you just go bankrupt and they take everything that is sellable from the company,” Gombart warns. “I would not advise any CEO to go for venture debt, this is really the very, very last solution.”

Explore the HEC Paris Innovation & Entrepreneurship Center's programs and services for startups to maximize your chances of raising funds. Learn more here.