As we embark on another year in the world of startups, it’s important to acknowledge the challenges that tech founders will face in 2023.
This year, top performing startups will have an easier time raising capital than average performing ones. Startups that have extended their runway by making cuts must ensure that they have strong results, particularly when it comes to unit economics and growth rates, when they next tap the market for funding in one to two years’ time.
Despite these challenges, it’s worth being reminded that startups continue to solve many problems in the world, both big and small, and capital continues to be raised for investment into startups.
The increasing trend of collaboration and partnerships between startups, large corporations and governments is also good news.
The first challenge for startup founders in 2023 is the difficult funding environment. The higher inflation environment and tighter monetary policy, along with geopolitical uncertainties last year, caused many venture capitalists to tighten their purse strings in response to duration risk, making it more difficult for startups to secure funding.
While the situation is improving, top performing startups will have an easier time raising capital than average performing ones. As investors are becoming more selective, they are placing greater emphasis on unit economics, growth rates, and market traction.
Startups that have achieved strong unit economics and sustainable growth will continue to attract capital.
Additionally, startups that have extended their runway by making cuts need to ensure they have strong results when they next tap the market for funding in one to two years’ time. These startups have extended their runway by making cost cuts and must prove that their cost-saving measures were successful and sustainable, while also achieving strong unit economics and growth rates.
Problems worth solving
Despite these challenges, startups should continue to solve problems in the world, both big and small.
From climate change and education to health, credit access, productivity and poverty alleviation, there are plenty of problems that require innovative solutions.
Startup founders must be able to demonstrate their ability to solve these problems with innovative solutions while also proving that their business model is sustainable in the long run.
Another challenge for startup founders in 2023 is the uncertain state of the world’s economy. The IMF is predicting that one-third of the world’s economies will slip into recession this year, with the biggest impacts being felt in emerging and developing economies.
However, other economies such as Australia, the EU, the US, and China are expected to escape deep recession.
Startups must be able to navigate this uncertainty by maintaining their agility and adaptability. As market conditions change, startups must be able to pivot their business models to meet the changing needs of their customers.
This requires an ability to analyse market data and customer feedback quickly, and to make informed decisions based on that analysis.
Despite these challenges, there is good news for startup founders. Local VCs have been able to raise funds from investors, demonstrating a strong belief in our startup ecosystem’s strength.
Against a backdrop of concerns that investors may be hesitant to commit capital, the tech scene has continued to exhibit potential, with startups securing significant funding rounds and venture capital funds raising substantial sums.
Optimism surrounding long-term technology trends and the potential for solid investment returns has helped to maintain investor interest in the region.
This reflects the impressive track record of producing high-quality startups in Australia and New Zealand, which suggests that investors remain hopeful about the potential for technological innovation to create shareholder value and drive economic growth in the long-term.
The increasing trend of collaboration and partnerships between startups, large corporations, and governments is a positive development. These collaborations enable startups to leverage the expertise, resources, and networks of established players to accelerate their growth and impact.
In addition, the increasing trend of impact investing is good news for startups that are focused on solving big problems in the world.
Impact investors are looking for startups that are making a positive impact on society and the environment, while also generating strong returns.
- Benjamin Chong is a partner at venture capital firm Right Click Capital, investors in bold and visionary tech founders.
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