The Investment Market Is More Competitive Than Ever — Here’s How Startups Can Still Secure Funding

The past few years have seemed like a bad TV romance between the U.S. market and the Federal Reserve. There’s been so much talk of “will they, won’t they” on interest rate cuts and trying to read the tea leaves that it can drive a person mad.

This has created a lot of uncertainty and volatility. Some companies, especially startups, get caught sitting on their hands instead of pivoting to the reality of the new market.

Fortunately, the U.S. has avoided a recession so far. However, some economic volatility and investor uncertainty have made life challenging for entrepreneurs dependent on new funding to grow their businesses.

While studies show a rebound in startup funding through the first part of 2024, that funding has been spread out across concentrated industries — like AI — and even fewer companies, creating an even more competitive environment than usual.

While entrepreneurs don’t need additional investment challenges, I outline three critical steps to adopt a spirit of resiliency and navigate this market more effectively.

Related: You Don’t Need Venture Capital Anymore — Here Are 4 Funding Alternatives

1. Double down on your financial health

Prioritize your company’s financial health and efficiency regardless of market conditions, which is especially crucial when experiencing volatility.

Your first step is to scrutinize how you’re investing in your own business. How are you allocating cash among your different departments? You would be shocked at the number of organizations that don’t grasp the importance of this concept until it’s too late. Whether it’s you as the founder or a trusted financial partner or advisor, ensure you know exactly how much is coming in and going out, where and how low it can go until you reach critical mass.

With that in hand, determine the most effective places to cut costs while still spending money in the right places. Sometimes, the best way to cut costs is to spend money on a good bookkeeping firm or building out your finance function. It costs money upfront but will save a ton of money in the future. This is always one of our first recommendations to investment companies — get this done sooner rather than later.

As part of this exercise, you need to determine what KPIs or metrics investors care about and focus on keeping those higher than your peers. If net retention is a crucial metric, focus on what you can be doing to improve customer retention.

2. Don’t lose focus on who matters most

If you’re feeling the pinch of a volatile market, it’s likely your customer base is too.

This typically means their spending habits will tighten up, and they will have to be more selective about how and where they spend their money, not wasting precious income on unnecessary things. How are you going to ensure your product or services make the list?

Let’s say you’re a B2C brand whose primary consumer audience is shifting to lower-cost options because of tighter budgets. Unless your business is wholly commoditized, you often shouldn’t compete on price alone. So, how can you bring customers back?

Ideally, your first step would be to collect relevant data about your customers’ spending trends, how they use the product and what they value most. If your data suggests your customers value reliability, perhaps an extended warranty is one option to consider.

Understanding your customers’ situations and providing an alternative that meets their current needs builds a level of loyalty that is impossible to replicate. By tweaking your product and messaging, you’re showing customers that you care while ensuring a steady revenue stream amidst challenging economic factors.

Related: 99% of Investor Pitches End in Failure. Here’s How to Make Sure You’re Part of the 1% That Succeed.

3. Stay flexible and agile

When the market is confusing and unpredictable, prioritizing strategic agility will help you quickly adapt to changing market conditions.

Market volatility often creates opportunities for those who are flexible and looking for opportunities. However, it does mean you need to have a good foundation for your business. Focusing on growth in tough markets will be challenging if you’re always on your back foot.

How can you rethink your business model to make it more scalable?

Flexible infrastructure can keep your business lean and adaptable. You can expand quickly when opportunities arise or contract if conditions worsen. This strategy makes your business more resilient, enabling it to thrive despite external economic pressures.

Finally, don’t forget about investing in innovation. Even with limited resources, this can help you maintain a competitive edge. Focus on “smart innovations.” These small, impactful changes can differentiate your business without spending too much.

Maybe you’re refining existing products to enhance efficiency or adapting features based on customer feedback. Even if it’s not a large-scale R&D project, strategic innovation demonstrates a commitment to progress and helps your startup stand out by fostering long-term customer loyalty.

Even a series of small innovations can compound into more considerable competitive advantages in the long run.

Related: Venture Capitalists Are Pickier About What They Invest In — Here’s How That Actually Benefits Startups

Surviving economic uncertainty

The savviest economists don’t have a magic crystal ball — even if they act like they do.

No one can speak with certainty about what’s to come or how the market will be in the next few months or even the next several years.

The International Monetary Fund anticipates further market volatility in 2025, including a possible slowdown in economic growth in the United States. Escalating global conflicts and a significant shift in the US political power structure muddy the waters even further.

The point is these things are outside your control. You can’t change the weather, but you can grab an umbrella. Just because you can’t affect the market, you can still shore up your company to weather any financial storm that may come.