5 things startups need to do to survive the capital freeze, according to Midas List VC

The S&P 500, down 20.6% year-to-date through June 30, had its worst first half since 1970. That wiped out $9 trillion in stock market wealth and squeezed price that venture capital is willing to pay. hold a stake in a private company – for example, Klarna's valuation could be down 87%, Bloomberg noted.

Such drops in stock valuations scare off venture capitalists, as they kill investors' appetite for IPOs. The lack of an IPO means VCs are losing a key way to earn a profit on their risky startup bets.

What should business leaders do? For answers, I turned to Gordon Ritter, founder and general partner of Emergence Capital Partners, which has been on the Forbes Midas list four times.

in a June 2022 interview. Ritter, whose company has backed successful companies such as Salesforce, Zoom Video, and Veeva Systems, shared five tips for today's startups.

1. Resist the fear of missing out (FOMO).

When FOMO plagues the hearts of investors, they push their portfolio companies to hit $100 million in revenue so they can go public before the IPO window closes.

CEOs are struggling to resist this siren call, as it urgently promises vast wealth. As the FOMO bubble grows, "If a company goes from 1 to 3 or 4 in six-month increments and doesn't care about taking risks, creating new products, [or finding a way to profitability], she can get 100 times the annual recurring revenue ratings and increase her A, B, and C rounds in one year,” Ritter told me.

When the FOMO bubble bursts, these companies are in danger. To avoid this fate, Emergence encourages its portfolio companies not to press the pedal until they've built products that customers value more than competitors.

2. Don't grow quickly until your product delivers compelling value to customers.

As I wrote in Scaling Your Startup, business leaders shouldn't be looking for triple-digit growth until they've completed the second stage of scaling. at scale: Create a scalable business model.

Zoom Video followed this approach. As Ritter said, “As Eric Yuan, Founder and CEO of Zoom mentioned at our May 2022 CEO Summit, 'Everyone told me I was crazy. no need for a new video conferencing solution. An investor said he would write me a check for anything other than that.' [Yuan] took about two years from 2009 to 2011/12 to rebuild Zoom's code because he wanted to provide the best product in the industry."

Are you such a leader? Ritter is looking for founders who [don't] "show pride. Focus on the viability of their business, build a moat and align their unit's economics".

3. Strengthen your sales force.

During an economic downturn, customers are looking to spend less on goods and services they deem essential.

Here's how enterprise software customer behavior changes during a recession. As Ritter explained, "During the FOMO portion of the business cycle, enterprise end users are encouraged to use the software they love. When the bubble bursts, enterprises try to cut costs and make operations more efficient by spending only on the most essential software tools. ."

If this is happening in your market, he advises strengthening your sales force so they can persuade what he calls "rational buyers" (such as a company's chief technology officer) that your startup's product must be among the best. three to five that the CTO will continue to buy during the recession.

4. Diversify your customer base.