Winter Is Coming: Why Entrepreneurs Should Raise Capital Now

As 2016 continues to fly by, it has become increasingly clear that the global economic landscape is anything but stable. Oil prices remain artificially low, global equity markets continue show high volatility, the IPO market has dried up, and many of the once-unassailable private “Unicorn” companies are beginning to wobble. Just yesterday Zenefits, the HR startup juggernaut announced that it would be laying off nearly 17% of its overall workforce due to market conditions.

All of these economic factors may seem abstract, but in reality their very existence is likely to pose problems for entrepreneurs of all sizes in the near-term. The perception of market uncertainty spreads like wildfire, impacting angel investors and institutional venture firms alike. The capital markets for startups and small businesses are poised to dry up in the coming months, and smart entrepreneurs need to act now in order to survive the drought. To borrow a line from “Game of Thrones,” the investment winter is coming, and now is the time to prepare.

Get started now and raise as much as you can

Startup investing is unique in that the positions investors take are highly illiquid and speculative. After all, when you’re investing in an early stage business, you’re really taking a bet on the management team and potential for a tremendous exit at some point in the future. Startup investing is often emotional investing, and that causes the pendulum to swing to extremes overnight. When times are good, capital flows freely. When times change for the worse, however, capital can dry up overnight. Entrepreneurs need to recognize that the winds are shifting, and that the capital environment of the latter half of 2016 is likely to look unlike anything we’ve seen over the past few years.

Startups and small businesses looking to raise capital should start immediately. I believe that we have a three to five month window of time before a pessimistic economic sentiment sets in across the investing world. Entrepreneurs with strong businesses will survive, but in order to do so they need to make sure that they have plenty of cash in reserve for the coming “funding winter.”

Look to existing investors for support

So how should an entrepreneur go about getting started? The best strategy is always to start with your existing investors. After all, they’re already committed their capital and effort to the business you’ve created and have a vested interest in protecting their investment. More often than not, existing investors “keep their powder dry” for future rounds and are willing to participate when asked to maintain their pro-rata ownership or increase their position.

Even if an investor chooses not to participate in a new round, they can still be a tremendous help. Ask for introductions to other investors in their network, or for advice on how to move forward. Many times, the old adage about “ask for money and get advice, ask for advice and get money” holds true. Never underestimate the power of the personal network and fear of missing out. These two powerful drivers are vital to a successful capital raise