Report says fundraising is replacing recruitment as the most pressing startup challenge
About 74% of founders reported being concerned about their ability to raise their next round of funding, according to a new report from data-sharing platform Startup Snapshot. The report, which included more than 450 Israeli founders and employees on the state of the emerging early-stage workforce, highlighted the turbulent transformation the ecosystem has undergone in just two weeks. The data was collected at the beginning of April and in the last week of May and gives a glimpse into how rapidly changing economic market conditions are affecting early stage startups.
The report was prepared by Startup Snapshot by Yael Benjamin in partnership with Intel Ignite, Leumitech, The Zell Entrepreneurship Program, Yigal Arnon & Co.
The report found that hiring and retention, rated as the most pressing startup challenge in April, was replaced in May by fundraising, with 74% of founders saying they were concerned about their ability to raise their next round of funding.
Additionally, securing sales became a growing concern for the founder in May, as founders increasingly focus on reaching tangible business goals. 47% of founders rated sales insurance as a major issue facing their organization, compared to just 35% in April.
Venture capital across the board is pressuring their portfolio companies to cut costs and expand their runway, with 52% of founders saying they have already received a warning call from one or more of their board members.
To cut costs, 68% of startups report that they change their hiring strategies. 45% slow hiring growth, 18% freeze hiring altogether and just 4% fire employees.
The market downturn has not affected entry-level employees yet, with 68% reporting they are not worried about their future at the company. This is due to the apparent disparity in information, as employees are not privy to the growing investor concerns that founders are hearing behind closed doors.
With the sharp decline in technology stock prices, the popularity of public companies among employees is dropping. Only 11% of employees reported wanting to work for a public company that was very popular (eg Wix, ironSource). On the other hand, growth stage startups are gaining in popularity, with 49% of employees stating that they would like to work at one if they left the current company.
Startup founders are benefiting from the growing popularity of private companies, with 77% stating that there is a clear opportunity for them to snatch talent from public companies.
“Within a few short weeks, the economic downturn is starting to have a major impact on early-stage startups. The founders face the increasingly difficult task of continuing to show investor growth while also lowering burnout rates,” said Yael Benjamin, founder of Startup Snapshot. They make everything stretch and rethink the cost structure, including headcount.”
The report outlined exactly what we see with our portfolio companies. Everything on the market changed in less than two months. The fundamental shift from “Finance is not an issue, it’s all about hiring and retaining” to “How do we succeed during the next funding round and cut costs”. Despite the challenges, it is an opportunity for companies with significant funding to attract talent from downsized startups.”
“The shift from a ‘valuation crisis’ to a ‘demand crunch’ that could develop if the economy enters a recession is very worrying. Timur Arbel Sadras, CEO of Leumitech, said: ‘In research, we are seeing a growing desire from startups to secure sales and access to Concrete business targets between April and May, as companies increasingly focus on the rate and efficiency of their growth.
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