It’s becoming trickier to raise investment rounds due to the uncertain economic outlook. During the first quarter of 2023, $76 billion was invested by venture funds globally. That sounds like a lot – but actually constitutes a drop of more than 50% compared to the $162 billion raise in the same quarter last year.
Additionally, the collapse of Silicon Valley Bank has made things even more challenging for privately backed businesses seeking finance.
Therefore, it’s more important than ever to control spend to extend your runway towards the next funding round, manage growth and build trust and raise investment with existing and potential investors.
First priority is getting a grip on company spending. Spend control then lets you prioritise your resources by identifying areas of the business where overspending occurs. From there, you can decide to either save these funds or redirect them to where they can be more effective.
This can be automated through an expense management platform like Soldo. You load prepaid departmental cards with funds to reflect your annual budgets. This ensures employees have the funds needed to do their job. But minimises the risk of them overspending.
You can add extra controls to ensure spending is only made for its agreed purposes. This can be set up by blocking specific types of spend (i.e. entertaining) or capping spend on a category basis.
For example, you may limit spending on the SAAS category, so that it does not get out of control for licences that have not previously been agreed to.
While the ‘growth at all costs’ era is over for privately backed companies, you’ll still need to demonstrate consistent growth. Even in the current environment. Business is a numbers game, sure. But narrative matters too. You need to demonstrate that your business is on a sustained upward trajectory.
Refocus your KPIs to reflect metrics related to payback of customer acquisition and recurring monthly revenues. Rather than choosing to acquire new customers with an aggressive strategy that does not reflect whether they will break even or become profitable over the long term.
This new managed growth approach can be demonstrated by limiting spend on accelerated marketing campaigns, such as paid media. Instead, deploy marketing spend on a smaller number of high-value customers and account managing existing ones to cross-sell them products and services.
Demonstrating spend control also keeps existing investors onside. Keep these stakeholders happy so that they continue to be engaged and offer their wisdom, advice and contacts.
Showing that you are managing their invested funds carefully will give them confidence that you take the management of cash seriously. It also enhances the chance of them investing during the subsequent funding round.
Failure for them to participate again during your next raise can be a negative signifier to the market and may put off new investors from deploying funds too.
Additionally, managing positive relations with existing investors also opens up the possibility of bridging finance that you can use to extend your runway. This buys you more time so you can return to the equity markets when you have a higher valuation.
Putting in place a spend management tool now will show that you take the responsibility of using invested funds seriously. And will allow you to move towards building a more sustainable business.
Yes, finance team members can manually control spend management. But they also have competing priorities and limited resources. You can hire new team members. But this increases the cost of the finance function. And it may be harder to justify extra employees in the current environment.
Instead, set up a company spend policy that can be followed automatically via spend control tools, approvals and agreed top-ups of prepaid cards, lets you scale without adding more people to finance. And it will help raise investment during a difficult market. Now – and in the future.