Starting up in a slowdown: major disadvantage or hidden opportunity?

Amidst brutal layoffs, failed fundraising efforts, and shocking shutdowns, the current economic climate poses significant challenges for many entrepreneurs. This environment can be particularly daunting for first-time founders embarking on their entrepreneurship journey.

As a global startup generator, Antler has specialized in identifying and backing those exceptional founders early on. Known as “The World's Day Zero Investor,” they have invested in 300 ventures worldwide. In 2022, they expanded to France, launching a €30 million fund, leading three successful cohorts of entrepreneurs and supporting 13 teams.

In my role at Stripe , I had the privilege of collaborating with Euryale Chatelard and her team in Paris this year to mentor their latest batch of founders on pricing strategies. Beyond funding and mentorship, Antler also offers its founders access to a network of seasoned entrepreneurs and investors, aiding them in navigating fluctuating market conditions.

Recently, they co-hosted a panel with Google Cloud titled “Starting up in a Downturn.” Charlie Perreau led a candid discussion featuring Francois de Fitte , co-founder of Popchef (a startup providing digital cafeterias for companies), Evan Testa , co-founder of Roundtable (a community-led platform for private market investments), Valerie Gombart , co-founder & CEO of Hi Inov - Dentressangle (a European early-stage VC firm), and Cyrille Saint Olive from Google’s VC partnerships team. Contrary to the usual doomsday clichés, the panelists emphasized a refreshing message of optimism.

?? The Best Time to Start is Now

According to Fran?ois de Fitte, "When you're an entrepreneur, you never really try to time the markets. If you really want to succeed really badly, you'll succeed in pretty much any economy”. It’s not so much about the when that it is about the why: “Why do you launch that startup? And how far are you ready to go to live this long, tough, and let's hope, successful journey at the end?” wondered Cyrille Saint Olive.

Valérie Gombart also remarked that turbulent times impact less early-stage startups than scale-ups. By virtue of their nimbleness, the former have the ability to adapt more effectively than more established companies: “When you are tiny, you can find your niche, and you are able to find a go-to market where the micro environment won't hurt. A downturn may be the best period to incorporate new startups”. Evan Testa agreed with her statement, underscoring that higher investors’ expectations means paying attention to the right things from the get go, especially generating revenue.?

Smaller funding rounds and healthier valuations fuel more efficient operations. Evan Testa observed that limited funds force quick decision-making on what works and what doesn’t. It’s no coincidence that when experienced serial-founders launch another venture, they default to fewer investors and employees, Cyrille Saint Olive remarked.

??Read the Fine Print Before Taking VC Money

Having raised €30m for Popchef, Fran?ois de Fitte knows a thing or two about money, and especially about the strings attached: inefficiency and lock-up. The first problem about money is that “It makes you lazy. Because you can solve any problem with money, it doesn't make you very creative in finding solutions. And when you are inefficient, you get diluted for nothing”. The second problem is that external capital comes with conditions and clauses designed to keep founders in the game for the long run. Liquidity preferences means that startups need to keep growing into their next higher valuation, and the higher the valuation the harder it will be to sell the company. “If your objective is to make money and acquire freedom through entrepreneurship, do not raise money or as little as possible. If the objective is to have a huge impact, then raise money. It probably won't make you as rich, but it will help you create a larger company”.

Valérie Gombart acknowledged that "raising money from venture capital firms is not the journey that everyone has to follow to succeed as an entrepreneur". Adding an insightful investor’s perspective, she shared which kind of returns the different VC types are looking for their best picks: a 10x on their investment for Series A (€5-10m round), a 5x for Series B (€15m+) and at least a 3x for Series C (€100m+). “Have all those numbers in mind and raise what you need, not more than what you need”, she recommended, “be realistic”. And budget at least 6 months. “It's super important for you to decide when you want to close your fundraising, and not to wait for the VC to close it, because they have the time, you don't”, Cyrille Saint Olive advised.?

?? Focus on the Basics: building a A-Team and shipping painkillers

Even if the bottom line is now more top of mind than at the start of the decade, Valérie Gombart’s early-stage investment criteria haven’t changed that much for the last 10 years: “We won't ask a tiny startup with 15 people to go to profitability in a rush”.

A strong, diverse, and committed founding team is more than ever a key factor in a startup's success. “It's the team, the team, and the team” hammered Cyrille Saint Olive, warning that it is a tough environment for solo founders.

For entrepreneurs seeking VC funding, the bar is even higher: they need to build a crew able to create a category leader in a big enough industry. As purchase teams are increasingly scrutinizing their SaaS spend, it’s also mandatory to be on the right side of the fence: better be a must-have than a nice-to-have!

?? Cultivate Resilience

Why do startups usually die? It turns out this lethiferous question sparked quite a lively debate. Cyrille Saint Olive highlighted “founders disagreement” and “cash management”. Valerie Gombart concurred, quoting Etienne KRIEGER : "Cash is more important than your mother" and she added “negative contribution margin” to the list. Evan Testa emphasized data hygiene: “it's more difficult to grow when you don't track the right things”.

Fran?ois de Fitte mentioned “giving up” and “market disagreement”. Reflecting on his numerous crises and pivots experienced at Popchef, Fran?ois de Fitte did not sugar coat the truth: “If you're selling a product that the market no longer needs, there's nothing you can do. In any other scenario, if you're resilient enough, you can always find a way through. In all three downturns, I was certain that we were going to fail. And everytime, we actually managed to find a way through. Entrepreneurship is pretty much going from bad news to bad news until it works”.

He emphasized social isolation and energy management as hard challenges to face. To provide objective guidance and help entrepreneurs make difficult decisions, he advocated for the importance of having a coach or mentor, distinct from personal relationships, "Your wife is not your coach, neither are your friends". Because of their skin in the game, investors are the best sounding boards and yet founders often fear them, while they shouldn’t shy away : “Take 15 minutes with them. Be transparent and go with your ask. You will have intros and good advice”, recommended Evan Testa. For Cyrille Saint Olive, “an entrepreneur who gets out is an entrepreneur that gets on” ("un entrepreneur qui sort, c’est un entrepreneur qui s'en sort"), especially if it evolves talking to customers.

For those embarking on their entrepreneurial journey, the message is clear: while the path may be fraught with obstacles, the potential for growth and success in these hard times is significant. Entrepreneurs who can navigate these waters with agility and vision will emerge stronger and more prepared for the future.