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Y Combinator, a start-up accelerator, has sent out a letter of warning to its start-ups.
According to the company, the economic situation in the world is bad at the moment, no one can predict what will happen next. Companies should prepare for an economic downturn by cutting costs, as fundraising will be difficult in the future.
If investors give money, start-ups have to take it right away, but there is a need to build a system that allows the startup to survive for the next two years. Often, during an economic downturn, companies can gain significant market share simply by staying alive.
During an economic downturn, even wealthy venture capital funds slow down their capital allocation; smaller funds often stop investing or disappear. This leads to less competition between funds for deals, resulting in lower valuations, smaller rounds and far fewer deals. In such situations, investors allocate capital to the most successful companies.
If the startup is in the post-Series A stage and before product launches, do not wait for the next round until you have clearly marketed the product
Y Combinator warns, that fundraising in the next 6-12 months will be at the peak of the downturn and it will be difficult to get funding.
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