With valuations down and funding harder to come by, it’s a tumultuous time for startups. Investment into European tech is set to fall another 39% this year — from $83bn in 2022 to $51bn in 2023, according to Atomico data.
The number of startups in the ecosystem is still growing, but only 31 new unicorns were minted in Europe in 2022 as the absence of megarounds took a toll on tech valuations.
So how can your startup stand out from the crowd? We asked successful founders for their tips and tricks for staying competitive in tough market conditions.
1/ Focus on your product and values
The slowdown is a time to “realign on the basics, be laser-focused on the overall mission and vision, and be very clear about the value proposition of the business”, says Romain Mazeries, CEO of Mangopay, a payments platform. The fintech startup reported more than 35% growth in 2022, and recently acquired Dublin-based payments tech WhenThen.
Sustainability and other values that the company might have around diversity and inclusion or anything that the founders care about — that's what distinguishes you in a competitive landscape
Mazeries says that it’s also the right time to figure out how to operate more efficiently as a business: “We’re still growing at the same pace but we’re also trying to improve the overall performance and efficiency of the company, like pushing for more automation to limit our recruitment.”
For Melissa Yacoub, a startup consultant and cofounder of Know Me, a HR tool, this is when companies should revisit their core values.
“Sustainability and other values that the company might have around diversity and inclusion and so on, or anything that the founders care about — that's what distinguishes you in a competitive landscape.”
She adds that this story is what matters to investors — it’s what makes your startup unique. “Focus on things like how would you pitch your idea? How does it solve a problem? Was this a story that came from something personal?”
2/ Build more meaningful relationships
Yacoub says that it’s important to form meaningful partnerships to improve your offerings and grow your client base in tough market conditions.
"Build strategic partnerships by collaborating with businesses that have an audience that might benefit from your services. What are the gaps you can identify within their business that you can fill, and in theirs that you can fill? This will also be a green flag for investors in subsequent fundraising rounds."
Mazeries says that startups should use the slowdown to get closer to existing clients. “It’s a good time to reprioritise and focus on what is generating value for the customer and revenue for the company.”
For scaleups, this is also a good time to focus on how to expand, where to expand and think about the operational changes required to make these changes happen, says Yacoub.
“The growth stage focus should be to not only attract but retain both customers and internal talent. You also need to invest in your tech and in your business model to scale from where you are.”
3/ Be transparent and realistic
With valuations low, investors have become increasingly sceptical of hockey-stick projections. In a recent survey of Europe’s investors by Speedinvest, 84% of respondents said that they believed unicorns were overvalued.
When it comes to raising in a tough market, Mazeries says transparency is crucial. “Be very transparent about, for instance, the hurdles that the company wants to overcome with some additional cash.”
Milestones and roadmaps can feel like they were forcefully created a lot of the time, and that's why investors look at it and then ask more questions about the data
Natasha Zone, founder of Onezone, a curated discovery platform that has gained over 150k downloads since its inception two years ago, says that while it’s important to reach out to the right investors, it’s also crucial to start networking early on and give your network consistent updates. “I'm a big fan of talking to everyone and telling everyone what you want to do because someone would know someone who knows someone else who could be interested.”
She adds that with the shift to focusing on profitability and revenue, investors will question your goals and data. “Know the numbers that you care about — if you really care about retention, know those numbers. And if someone asks you about acquisition, just be confident in saying that 'I'm not focusing on that right now' and give good reasoning as to why.”
Founders should focus on proving only what they already know — such as traction, agility of the team or partnerships already formed, says Yacoub. “Milestones and roadmaps can feel like they were forcefully created a lot of the time, and that's why investors look at it and then ask more questions about the data.”
4/ Look out for yourself — and your team
Speedinvest research shows that management teams are a major focal point for investors deciding whether or not to invest in a startup, with 49% of respondents highlighting the team as the main selling point. 51% of investors also said that in the downturn, they were now more focused on the management team than they were before.
If you know one person that has been in the city a bit longer, ask them to introduce you to someone else and that causes a ripple effect
“If it's the first time you're raising money, surround yourself with peers that went through the same process as they can mentor you,” says Mazeries.
He adds that founders should try to stay focused on the vision and why they started doing what they’re doing in order to stay motivated. “It's super important that its founders need to be motivated. Because if you're demotivated, it's really, really tough to motivate your team.”
Mazeries says that it’s key to communicate transparently with employees about the challenges and steps being taken to overcome tough times so that they can stay motivated. He says it’s also important to keep investing in company culture and have positive team activities such as celebrating small wins even in difficult times.
Yacoub adds that founders should also find a support network and collaborators or mentors to help them. She says that especially as a diverse founder like herself in a big city, it’s key to network. “It’s hard, but don't give up — there are communities out there, and you can leverage your network and ask for help.
“If you know one person that has been in the city a bit longer, ask them to introduce you to someone else and that causes a ripple effect. You’ll feel a little less alone and a little more like you can do it.”