The number of laid-off tech workers continues to climb as banking problems, high interest rates, and stubborn inflation continue to batter the industry. If this were a different segment of the economy, we might see scenes on the news reminiscent of the Great Depression.
But this is tech, so we won’t see bread lines. Far more likely, we will see the creation of hundreds of brand-new, seed-stage startups creating a range of products and services, and hoping investors will be eager to get on board.
Their timing, however, is not ideal. Venture capitalists are tapping the brakes on new investments, while advising their current portfolio companies to extend their runways and conserve cash, as it could be some time before the money flows as freely as it did in the past.
This is unwelcome news to early-stage companies, who need a capital infusion to get the business off the ground. And for Black founders—who raised just 1% of the $215 billion allocated by VCs last year—the situation seems even worse.
Hard-pressed to raise funding even when times are good, Black founders likely see bleak prospects for the year ahead. Many might even consider approaching investors in other countries, where raising an early-stage round might be easier.
But take it from a Black founder who raised seed financing last year, when conditions were just about as bad: The U.S. is still the place to raise your seed round.
IT’S WHO YOU KNOW
The key to success for a startup company is to offer something new, a product or service that the world wants and that consumers and businesses will pay for. It also helps to be first.
Raising funding, however, is a different proposition. It’s not always a meritocracy. Often, knowing the right people is just as powerful as inventing something new and different, or being first to market.
For an early-stage company, there is no better network than the one that exists in the U.S.
My market intelligence company, Rwazi, joined seed-stage accelerator Techstars last year, with the attitude that we were open to raising funding, but were far too busy signing customers and bringing in revenue to go out and aggressively raise.
We were in a good position. We were growing our company nicely, and adding constantly to our customer base. A casual conversation about funding turned into another conversation, which turned into a round of introductions—and soon we were able to bring in several million dollars in seed funding to fuel our growth.
This would not happen in another market. But it can happen when an early-stage company joins a program like Techstars, 500 Startups, gener8tor, Y Combinator, or one of the many other incubator and accelerator programs in the U.S.
If you are an early-stage company, join the network and engage with mentors. The competition to get in can be fierce, but it’s worth the effort.
ADVICE TO MINORITY FOUNDERS
The U.S. network for seed-stage companies is a robust one, and taking full advantage of the mentorship and introductions that come through an accelerator program puts most companies on the path of raising the funding they need.
But the trick to raising it is not needing it, and this especially true if you are a minority founder.
Years ago, companies raised funding to build a product and then tapped customers for it. But those days are gone. Early-stage companies need a product and customers before they can raise.
We bootstrapped Rwazi while we sold our product and focused more on our customer base than we did on our bank account. Being part of the Techstars network meant that, as we grew the company and earned revenue, investors began finding us, not the other way around.
There are simple revenue targets that investors use to determine whether a company is ready to raise a seed round or a Series A round. But if you are a minority founder, you might as well throw the standard formula out the window. That’s because you will have to vastly outperform the usual numbers to raise your round.
Rwazi, for example, showed monthly recurring revenue of more than $100,000, a figure most investors associate with a Series A company. We did this when we were still a pre-seed company. And we raised seed funding.
Minority founders will have to beat the numbers, the way we did: Beat them so hard that there is no further doubt that the company can scale. Is it easy? No. But if you are a part of the U.S. network, it is doable if you have a viable business.
Company founders are apprehensive about the year ahead, and for good reason. Founders of brand-new companies are probably even more worried since the funding they will need is harder to come by. And among all the early-stage founders—whose numbers are likely growing fast thanks to job losses at tech giants—no one has as much to worry about as minority founders.
These founders will have to work twice as hard just to get to square one. It won’t be easy, but it can be done. And the U.S. is still the place to do it.
Joseph Rutakangwa is the founder and CEO of Rwazi, a market intelligence platform.
