How to Raise Venture Capital for Your Startup, Despite the Recession

• The first quarter of 2022 saw a 19% decrease in global investments from the fourth quarter of 2021.
• Despite the drop, investors still hold some available funds, experts told Insider.
• Here are two venture capitalists’ tips for raising and the most promising industries right now.

Alongside recent news of an economic slowdown and a potential recession, venture-capital investments dropped in the first quarter of this year. 

The global $143.9 billion raised in the first quarter of 2022 was 19% less than the quarter prior. Despite the steepest quarter-over-quarter drop in global funding in almost a decade, venture capital is still flowing to certain industries, according to experts Insider interviewed. 

Some of today’s highest raisers are coming from industries like healthcare and technology, said Pano Anthos, the founder of startup accelerator XRC Labs, at the company’s Demo Day presentation in May. Additionally, he outlined the five main sectors that XRC Labs believes are poised to do well this year: the consumerization of healthcare, Web3, marketplaces, consumer brands, and digital technologies in commerce. 

Insider spoke with Anthos, a VC advisor, and two startup founders who shared tips for raising capital right now.

1. Get in at an early stage

Despite news of decreased funding, early-stage companies are still in a good position for investment opportunities, said Adam Kaufman, a senior advisor at Ovo Fund, a VC fund that has invested in companies like the Citizen app.

“A lot of people would probably say it’s not the ideal time for founders to raise money, but there is still a ton of money in private hands,” he said. “The key is to know how to identify the right sources of capital and to inspire partners to believe in your vision.” 

2. Innovate on existing industries

Data analytics, machine learning, and artificial intelligence are industries Kaufman is watching for future opportunities. However, the best kind of new business is one that people can relate to and understand, Anthos added.

“Inventing something and getting customers to change behavior? That’s very hard,” he said. Instead, he suggests founders innovate through substitution, redesign, or creating a new way to do something. 

He advises entrepreneurs to ask themselves questions like: How can something move another way instead of in a straight line? What’s a more efficient and sustainable way to manufacture? How can we utilize technology to help inform decisions?

3. Bring marketplaces to industry intersections

Marketplaces are a growing sector of our economy and promising for founders to tap, Anthos said. Marketplaces are some of the easiest businesses for consumers to understand and use, he added.

If a founder has expertise in multiple industries, marketplaces are a great way to combine them and solve the overlapping issues, he said.

4. Design with customers in mind

Experimenting with “product-customer-channel fit”— which is determining which products and channels of sale customers interact with best — is the process Sung Park, the founder of nutritious-snacks company Fyxx Health, uses. Park says that strategy for scaling businesses helped him raise nearly $800,000 in total venture capital.

“Our philosophy is to create a series of experiments,” he said, adding that Fyxx experiments by sending products into the market to discover which ones sell and which ones don’t. “It’s much more accurate and believable than market research.” 

Understanding the consumer reaction is a necessary step to growing and generating funding for a business today, Anthos said.

5. Network to build your staff and investor portfolio

It is critical for a founder to build their teams from the earliest stages, Kaufman said. The current competitive environment makes a solid team much more enticing to investors, especially for tech and software entrepreneurs.

“The founder who can convince talented developers to join him will be in a desirable position to grow and to attract more capital,” Kaufman added.

Meanwhile, Zarina Bahadur — founder of baby-essentials subscription-box business 123 Baby Box — said it’s important for founders to network. To date, she’s raised just shy of $600,000 in VC. 

It’s important to be realistic about connecting with investors who are in your network of peers and also unknown to you as an early founder, she said. 

“If you are one person away from a VC or an angel, try to get that intro,” she said. “But if there’s a VC you’re far from, don’t focus on them — find the lowest hanging fruit, then it’s a ripple effect.”