Journalist-turned-VC extraordinaire Christina Farr put out a feast of insights just in time for Thanksgiving, with the latest issue of Second Opinion sharing “How Health-Tech Founders Can Survive a Brutal 2024” instead of a rosy predictions post.
Why might things get worse in 2024? In part because most companies raise funding every 18 to 24 months, and those that raised at the top of the market but had a healthy enough burn rate to sit out 2023 will have to come back to the table. Some startups won’t like what they hear when the music stops.
- Don’t forget that there’s no shame in letting go… Farr opens her survival guide with some heartfelt advice and a light at the end of the tunnel for the startups that don’t make it. If you end up starting over with a clean slate, you’ll have: 1) a faster path to funding because you’ll know more investors; 2) a better sense of the right hires for the early team; 3) more experience finding the right customers.
- Don’t be afraid of a rollup. For companies that are “features” as opposed to platforms, firms are actively looking to invest in roll-ups that keep talented teams intact as they merge with other companies to build comprehensive solutions.
- Practice ruthless prioritization to get to break-even. Farr recommends that founders start operating as if they won’t raise another dime. The hard decisions, like cutting a growth initiative that might not pan out, are ultimately what will get expenditures equal to income.
- Think through what a liquidity event looks like for your business. Not all companies will see a $1 billion exit. Now’s the time to be realistic about your company’s potential and make smart decisions around that. “If you don’t expect in your heart of hearts that your company can IPO, don’t waste cycles trying to raise a big round at a big valuation.”
- Get into short-term survival mode. Farr is in the camp that now probably isn’t the time to step on the gas. Rather than being forced to shut down because of lack of capital, play it tight and maintain optionality. “Sometimes, particularly in healthcare when things tend to be slower, that’s all you need.”
- Think carefully about a down round versus structure. When debating whether it’s better to take the hit on valuation or take a term sheet that preserves valuation but includes “structure” provisions that are less favorable, Farr’s team at OMERS Ventures mostly agreed that a down round is preferential. That said, “in 2024, take whatever you can to stay alive!”
The Takeaway
The takeaway here is simple: the frontrunner for this year’s best prediction post is a survival guide, and you should probably be tuning in to Second Opinion.
