WTF Summit Recap: Startup Silver Linings

Today’s economy is challenging for startups as many new ventures find scaling a tougher climb. But that may not be a bad thing.

At The Information’s 2024 Women in Tech, Media and Finance Summit, Kate Clark, The Information’s deputy bureau chief, sat down with three experts to discuss how entrepreneurs can grow their businesses in today’s market:

• Shikha Goyal-Allain, Bay Area market executive and managing director, Innovation Economy Banking, J.P. Morgan
• Annie Kadavy, managing director, Redpoint Ventures
• Lauren Cooks Levitan, president, Faire

The Current Startup Environment

One of the longest bull runs in history slammed into a wall in 2020 when the pandemic upended a record-breaking 11-year stretch. Though the aftershocks are still making themselves felt, Annie Kadavy said the market is normalizing.

“If you look at PitchBook, the number and level of deals being done harks back to what we were seeing from 2014 to 2018,” she said.

The main difference, said J.P. Morgan’s Shikha Goyal-Allain, is that investors today are more selective than they might have been in the past, making capital structuring more complicated in today’s market. She added that this shouldn’t discourage companies. Instead, she emphasized the importance of working with a financial partner that can navigate a company through any market, at any stage of their development.

“We have this incredible vantage point because we work with companies from the seed stage to large public companies, giving us the expertise, systems and solutions to best serve rapidly growing tech companies,” she said.

The Benefits of a Bear Market

The drawback of easy capital, said Lauren Cooks Levitan, is that companies don’t necessarily learn to control waste. She pointed out that it’s easy to say yes to spending initiatives when you’re flush with cash.

“But yes isn’t always the right answer,” she added. “It’s the oldest line in finance, but it’s as true today as ever: Treat every dollar like it’s your own.” Companies that learn to prioritize ruthlessly and live within constraints, she said, are better positioned when the economy turns sour.

Deciding on a Debt Strategy

Goyal-Allain recognized that venture debt can prove a vital top-up on equity for some startups. But she added that it’s important to carefully weigh the “flavor” of debt before rushing into any decisions.

She advised organizations to look carefully at their financials to determine whether the cost of capital will be a hindrance or something the business can absorb in the future. She added that one thing companies frequently overlook when taking out a loan is the structure of the debt. By way of example, she pointed to a debt facility that might require a company to become cash flow positive in a couple of years, when in that time frame it might be more prudent for the company to increase spending to capture market share.

“Make sure you’re working with a lender that’s really able to help you peek around the corner and pivot with you when the time is right,” she advised.

In light of the regional banking crisis in early 2023, the panelists agreed that picking the right financial partners—and having a backup bank lined up in case things go south—is crucial. For instance, Cooks Levitan expressed gratitude for Faire's existing relationship with J.P. Morgan. This allowed them to swiftly transfer funds during a stressful period, as they had an account with the global firm in addition to a regional institution that was under distress.

The Exit Market Forecast

Though the current market’s lack of IPOs has some investors and entrepreneurs worried, Kadavy said the current exit market is a poor measuring stick for startups and the venture capitalists that fund them.

“I can’t know what it’s going to look like in eight or 10 years,” she said. “So when considering funding a Series A, it shouldn’t be a major consideration.”

Goyal-Allain agreed, though she stipulated that IPOs don’t have to be the ultimate goal.

“The environment’s changed. People are looking at alternate exit paths,” she said. “It’s good to have a plan B ready.”