Startup Financing: The VC Beenext Fund explains to startup founders how to adapt to the financing winter

Bangalore: Singapore based early stage investor stateext which has backed companies such as BharatPe, Open, Jupiter, among others, has joined the growing list of risk capital funds to issue cautionary notes to portfolio companies asking them to restore and adapt to the current market downturn. Beenext, which focuses on fintech investing, asked all founders to partner with their existing shareholders, review their marketing and headcount budgets, while verifying the availability of additional capital.

In a dual plan, Beenext in its note split companies with less than 18 months and more than 18 months of track.

For companies, with less than 18 months of track, Beenext asked the founders of the portfolio to: stop experimenting on new ideas and lines of business until the next round of funding, focus on monetization for core products, show a clear path for profitability and secure longer income contracts and freeze new hires. He added that the current funding winter, due to adverse global macros, is likely to continue for the next 24 months.

To its entrepreneurs, the fund said that in the current environment, a round flat (at the same valuation as the previous one) is not bad at all: “Try to increase the additional capital to extend your track. (e.g. reload in the previous shift). Flat round is not bad at all.

“The market has completely changed, so we have to be very realistic. Survival is the first priority rather than the price. So be it

on cost reduction, for example, try to get free AWS / Google Cloud credits to remove cloud burn; try to reduce salaries and compensate heavily in ESOP (employee stock options). Stop experimenting on new ideas and lines of business until you step up to the next round. Try to leverage partnerships with other companies to sell rather than go it alone, ”the VC said early on in a note to all founders on May 26.

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For companies with more than 18 months of track, Beenext advised its portfolio to significantly reduce burn, prepare for worst case scenarios on staffing, and take necessary action. He also asked companies to consider an acquisition or pivot, in case they lacked a market fit for the product.

“Accelerate the process of finding product market fit (PMF) by identifying the right customers and stopping spending on unfocused marketing and business development. If you have less than 6 months of track and no adaptation to the product market, you may need to consider acquiring or hard reset with just one team and a very central pivot, ”added Beenenxt.

Interestingly, Beenext’s Indian portfolio also includes Mfine
which has fired more than 500 employeesa sizable portion of its workforce, as the company ran into financial difficulties.

In recent weeks, several venture capital firms including Capital Sequoia and Y Combinator sent these advisory notes to portfolio companies, warning them of the funding winter and asking them to focus on profitability.

Earlier this week, Sequoia
called the market downturn a “melting pot moment”, warning the companies in the portfolio. In the 51-page note, the blue-chip venture capital firm told the founders not to expect a quick recovery.

“When capital was free, the best performing companies consumed capital. As capital has become expensive, these have become the worst performing companies, ”Sequoia said in his advisory, adding that the era of being rewarded for hypergrowth at any cost is drawing to a close.

Last week, Silicon Valley-based startup accelerator Y Combinator had
he warned the founders of all his portfolio companiestelling them to plan for the worst.

“If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend the track within the next 30 days. Your goal should be to get to Default Alive, ”Y Combinator said in a statement.

Even co-founder and CEO of Unacademy Gaurav Munjal, whose company has undertaken layoffs and cost-cutting exercise, told employees in an internal note that
“winter is here” and that funding will remain scarce at least for the next 12-18 months.

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