Potential Challenges Affecting Startups in 2024

When managing a startup in uncertain times, it pays to be aware of the conditions you may be facing. This can help you prepare to mitigate the issues that arise. Because of this I’ll be covering the potential challenges affecting startups in 2024, and offering a set of solutions in case VC funding dries up in this two part series.

Unusual Market Conditions May Be One of the Challenges Affecting Startups in 2024

According to a January, 2023, CNBC article, startup funding fell 63% in the fourth quarter of 2022 compared to the 4th quarter of 2021. The drop was based largely on recession fears, which have continued throughout 2023—although, with some calming in the 4th quarter of 2023, as inflation receded a bit.

In normal times, I would say there’s always a sliver of venture capital available for startups, which already absorb a very small portion of total venture capital investment. But these may be unique times. Therefore, there can be unique challenges affecting startups in 2024.

Impact of the IPO Market and Inflation Can Be a Factor

A StockAnalysis.com article says there were 1035 IPOs in 2021, and only 181 in 2022. There were 148 in 2023 (partial year). As you may know, IPO activity is a key indicator of the health of the venture capital industry.

As I discuss in “The Fundable Startup: How Disruptive Companies Attract Capital” (Pp. 57-63) Venture Capital firms raise most of their capital from Institutional Limited Partners at times when the IPO market is hot. When the IPO market is cold, the VC firms have a difficult time raising capital, and some will probably go out of business. This factor has certainly contributed to the difficulty of raising capital for startups in 2022 and 2023 and may be one of the challenges affecting startups in 2024 as well.

What is the Takeaway?

This means most venture capital firms will have less cash to invest. They will need to reserve capital for their existing, probably struggling, portfolio companies. So, it may be a difficult time for them to make new investments.

Then, There is Inflation

Another factor is the high rate of inflation. Inflation means almost everything costs more, including salaries for employees and parts for products. Inflation complicates the fundraising issue by increasing the amount of capital that startups need to raise. Overall, prices are about 12% higher today than in 2020.

So, What Can Be Done About these Potential Challenges Affecting Startups in 2024?

To mitigate the damage of these challenges affecting startups, start by reviewing your overall strategy. Take a critical look at your strategic alternatives. Are there strategic alternatives that require little or no capital? If so, do a SWOT analysis for those strategies and create a brief strategic plan for consideration. The SWOT strategy is a careful analysis of “Strengths,” “Weaknesses,” “Opportunities,” and “Threats.”

Does Your Startup Need as Much Capital as You Think?

Ask yourself if your startup really needs capital. Not all startups need a significant amount of capital. Sometimes it’s possible to launch a company on a shoestring type budget. One solution if less available capital is a factor affecting startups is for them to make a deal. Asking some customers to prepay for a product, or a portion of the development cost, is one possibility, for instance.

Another option is to look for ways to “bootstrap” your company. Is there a way to create your product without capital? Can you get a few initial customers without capital? If so, you may be able to eliminate a lot of the risk that investors normally face.

It’s always important to explore all of your alternatives, but when funding is scarce, it’s even more critical. Have you exhausted friends and family as a source of capital?

If you sharpen your pencil, can you find ways to get by with less capital than you originally thought? Many startups “guess” at their expected revenues and operating costs. Perhaps if you create some spreadsheet models and analyze your revenues and expenses in detail, you can find a way to survive with less capital.

Solutions to Challenges Affecting Startups in 2024 May Require Sacrifice

Perhaps credit card debt can help? I’m not a big fan of using credit cards to finance startups, but sometimes a relatively small amount of money is enough to get an initial product and begin a bootstrapping strategy. Remember, these aren’t normal times. So don’t look for the normal solutions.

My next blog will cover a step-by-step of what else you can do to mitigate the potential challenges affecting startups in 2024. I like to reference the following Yogi Berra quote when referring to finding alternatives and doing what you can with the opportunities presented: