A 5-Step Survival Guide to Fundraising for a Niche Industry Raising investment rounds in these tumultuous times is like navigating a storm. Founders have to be especially thoughtful when it comes to crafting a pitch that will keep their company sailing straight.
By Kirill Gurskiy Edited by Micah Zimmerman
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The global venture capital (VC) market is going through an undeniably rough phase caused by a seemingly unending stream of economic and geopolitical issues, simultaneously occurring across all corners of the globe. According to KPMG's "Venture Pulse Q3 2023" report, worldwide VC investment dropped to a sixteen-quarter low in Q3 2023. Many market players feel concerned by the historically high number of down rounds, the overall slowdown in the speed of VC deals and the protracted lack of exit opportunities.
Based on CB Insights' "State of Venture Q3 2023" report, 9M of 2023 showed the lowest results in the amount of funding received by startups since the same period in 2019. The number of deals is also slightly lower: 21,216 deals during 9M of 2023 versus 22,992 deals within the same time frame in 2019.
The same report states that during 9M of 2021, investors injected an astonishing $465.6B into startups, while during 9M of 2023, startups received only $193.6B. So, 2021 was a peak year for startup funding, while the current market has shrunk to less than half its size.
With no end to market challenges in sight, today's investors are much more cautious. The good old venture market that we knew prior to 2022 no longer exists. With that in mind, here are 5 pieces of advice that we'd like to share with all companies seeking VC funding in 2024.
Related: VCs Want to See Product-Market Fit: Here's How to Prove It
1. The idea is not enough! Show VCs the first metrics and traction
In the current financial climate, it's much more difficult to sell just a lofty idea or a talented team to investors, no matter how good your previous achievements and your concept are. Nowadays, everyone is looking for something more solid, like initial engagement figures. Most VCs will want to see the first metrics or a prototype of your product right away to confirm its potential. Focus your effort on that to make your pitch convincingly stand out.
Also, you should deeply understand your market and its trends. Comprehend your competitors, envision their development trajectory, and clearly convey your thoughts on where you overlap, where you are better and where you have the potential to outpace them.
2. Work out your marketing strategy and the path to customers from the very beginning
Cultivating your customer base should begin as early as possible. Talking to potential customers is a great way to validate your concepts. Their approval and insights gained from these conversations can prove to investors that your startup is on the right track. Beyond that, a startup that is already earning money gives more freedom to its team and looks better in the eyes of potential VC investors. The venture capital landscape has led to increased demands from funds to startups. What matters now is the fundamental strength of the business, not just its potential. Investors are now looking for not just growth but profitable growth. They want to invest in growing companies that are close to self-sufficiency.
Today's market is oversaturated in many ways. The competition for the attention of consumers, talent, and investors is at an all-time high, and the flow of information is broad and intense. You need to figure out in advance how you will be breaking through all that noise to connect with your customers.
If your company serves a niche market, try reaching out to communities within that space. Perhaps your best strategy would be collaborating with micro-influencers or using highly targeted ads on social media platforms. Try exploring specific social networks and ways of communication that are typical for your niche (like games and Discord). For some niches, building reach offline rather than online may be better.
Related: Venture Capital 101: A Comprehensive Guide for Startups Seeking Investment
3. Start working with your community as soon as possible
One of the most crucial aspects, and a sign that all investors consider a positive indicator of business health, is proof that your product is in demand by customers. The more traction you show in this area, the higher your chances of being funded and the better valuation you may receive. Start building your future fan base as early as possible to prove that you've figured out the path to your target audience. On this front, your community stands above all!
Use all tools possible: launch YouTube or Discord channels, Twitter, Threads, Facebook groups and a Reddit thread for your startup with up-to-the-minute updates. Consider branching out into new platforms and become an early adopter. Every opportunity to keep your audience informed and engaged matters.
4. Think in advance and build your dry powder
Fundraising looks set to be an uphill battle in 2024. Few things are certain, least the time frame needed to secure an investment. Consequently, your best strategy would be securing a reserve fund for 12-18 months of runway. It can help to weather the ongoing storm still ravaging the markets.
Start the process of fundraising at least six months before your funds are projected to run out. It widens your opportunities in terms of sources of capital to raise and decreases the chance of being knocked out by unforeseen circumstances. Also, in the current situation, it's better to reduce operational costs as much as possible to continue working on a project.
5. Try to discover as many investment options as you can
Plan out the fundamentals of your fundraising strategy as early as possible. The wider the net cast towards potential investors, the higher your chances of securing the deal on terms favorable to you. Relying on a single funding source can be risky while diversifying your funding sources can help ensure stability and resilience.
Explore grants and individual donations within and beyond the angel investor community. Corporate partnerships and other options that align with your mission are worth investigating, too. Today, many countries are trying to develop their tech market by attracting companies and talent from abroad. They often offer special terms to startups, like lower taxes or even freedom from paying taxes for a couple of years. Think outside the box! For example, UAE, Saudi Arabia and Qatar are very enthusiastic about accommodating startups, including games and tech companies. Bringing in innovation is a core part of their economic strategy.
Ultimately, even though the VC market is going through a rocky period, it's still possible to secure funding, so long as you can prove your product viable. The trick is to show a strong understanding of how your product fits into the market. Provide community metrics, work out your unique selling points and marketing strategy from the inception, prepare your investor pitch thoughtfully and be ready to put more effort into the fundraising process than was required in the past.
