During these challenging financial conditions, startups have to find ways to lengthen their startup runway to survive in case there is a longer gap between VC rounds. As the average time between Series A and Series B rounds has lengthened significantly—an outcome of the reduction in global VC funding—startup founders are under even more pressure to squeeze every penny.
Let’s look at the most effective, practical startup funding strategies founders can use not only to prolong the time between rounds of venture capital investment but also to grow in this new environment.
Strategy 1: Improve operational performance
Optimizing your company’s operations to burn less cash or generate more revenue is one of the strategies for extending your startup’s runway between VC funding stages. Here’s how you can achieve it:
1. Spot and eliminate inefficiencies
Reviewing your business’s processes and operations is important, as identifying areas that could be streamlined, eliminated, or condensed can result in substantial cost savings.
Examine your team’s workflows closely and pinpoint any inefficiencies or bottlenecks. These often occur in areas that are underperforming or exceeding their business budget. Find tasks that consume a lot of time and money but provide little benefit, then explore ways to automate them using tools or strategic changes. Your departmental leaders or team managers can provide input in this process and possess a more comprehensive understanding of the constraints their team is experiencing.
2. Adopt remote work and outsourcing solutions
A substantial portion of every business’s budget is allocated to wages, project management, and team support. Therefore, it is wise to capitalize on any opportunity to reduce personnel expenses, which supports the extension of the startup runway.
In addition to reducing office expenses, a remote-first model can assist in recruiting top talent, as Forbes reports that 98% of workers would like to work remotely at least some of the time. Embracing remote work also enables you to access a global talent pool at a lower cost than employing locally.
Outsourcing the work will help you decrease operational expenses by focusing on delegating non-critical business operations to professional service providers. You can outsource services like accounting, HR, and customer support teams.
3. Renegotiate or eliminate vendor agreements
Do you really need all the subscriptions, tools, and services that you have for your business? You should go through your expenses, determine what is no longer useful, and get rid of it.
Negotiate for better deals, discounts, or extra time on contracts you still need. Find contracts that are not being utilized to the utmost extent, contain unnecessary add-ons, or have recently undergone a pricing or structural change to identify those that could be negotiated. Even contracts that currently fit within your budget may be worth reviewing, as you might be able to negotiate even better terms or additional value. You could use the fact that you are considering terminating the contract due to budgetary constraints during the negotiation process.
4. Expand your customer base
Extending your business to new markets and targeting new consumer segments can lead to more revenues and cash flow. In this manner, it helps diversify revenue streams and prevents reliance on a single audience or market for all of your revenue.
Start with thorough market research to discover unexplored opportunities and target groups. Customize your product features, pricing model, or messaging to cater to the requirements of consumer segments you have not previously targeted.
Next, determine the specific requirements and preferences of the new consumer segments, and adapt your product, marketing, and sales processes to those in a relevant way. If the situation is right, initiate marketing campaigns designed for individual parts of the target market with a problem to solve, not only to catch the eye of the new audience but also to let the market know that your business is expanding.
5. Concentrate on upselling and cross-selling
One practical approach to increase customer lifetime value (LTV) and overall revenue without increasing customer acquisition costs (CAC) is to concentrate on upselling or cross-selling to your existing customers. In general, selling to customers who have previously purchased your product is much simpler and more cost-effective than persuading new prospects to do so.
Through upselling, retailers provide customers with upgraded product versions and relevant supplementary features that meet their needs. A cross-selling strategy presents buyers with additional products that complete their customer journey.
Executing successful upselling and cross-selling depends on a full comprehension of customer preferences, behavior, and pain points. Identifying customer gaps becomes possible through a combination of product and marketing assessment. Develop supplementary products that address these needs and explore various messaging strategies that offer a fresh perspective on how your product meets existing requirements.
6. Implement new pricing strategies
Occasionally, the most significant impediment to generating additional revenue is simple pricing. If you are currently selling expensive annual contracts priced the same for all buyers, regardless of their buyer persona or usage, consider implementing tiered pricing plans, monthly contracts, or usage-based pricing to reduce the upfront cost of your product and encourage different customer segments to purchase it—a smart startup financial planning move.
Tiered pricing plans enable you to accommodate a broader range of requirements by providing consumers with varying features and benefits at different price points. Customers are charged according to their actual utilization of your product, which offers additional flexibility and increased value for those who do not require continuous access. Additionally, monthly contracts provide consumers with the option of paying in monthly installments rather than yearly ones, which can increase the appeal of your product.
B2B BNPL (buy now, pay later) is another method of altering how your customers perceive your pricing without changing it. B2B BNPL enables customers to pay for contracts in flexible monthly installments while they receive the total contract value upfront.
Strategy 2: Secure capital through alternative financing
If cutting costs or increasing revenue isn’t enough, you can explore alternative funding options to extend your runway while keeping full ownership of your business. Here are two non-dilutive choices:
1. Revenue-based financing
This financing option gives you capital based on your steady revenue. The amount you can access depends on your monthly or annual recurring revenue, and it can grow as your business does. Repayments also increase as your business expands, helping ease the financial strain during key growth stages. Repayment is typically made as a fixed percentage of your monthly recurring revenue (MRR).
Startups receive an extended time horizon for their operations with revenue-based financing, a form of finance where companies can obtain money without equity dilution. By using revenue-based financing, you are still able to get the required funds without the need to give away your ownership.
Revenue-based financing is also relatively straightforward to apply for, with some providers completing underwriting and approval processes in as little as three days. The application procedure typically does not require collateral and may not involve a personal credit check; however, the main prerequisite is that your company has a history of generating consistent revenue over several months.
Wing is an example of a platform that enables businesses to locate virtual assistants. They decided to utilize revenue-based financing as their source of money for marketing purposes. In 2023, they first secured $500,000 and, after that, $900,000. This helped them grow website traffic by 210%.
2. Debt financing
Another prevalent alternative financial method is Debt Financing. It helps in getting capital through different types of loans or borrowed funds.
Various debt financing options are available, such as lines of credit, small business loans, venture debt, and other types of loans. Approval for loans typically requires a credit check and may require collateral or a clear plan for how the funds will be used, depending on the loan type. Additional information about organizational growth targets and a general business strategy helps secure approval of specific funding options, such as venture debt.
Once your debt financing request has been granted, the fund is given to you, and you repay it over time, usually in fixed payments plus a certain rate of interest. The non-dilutive model makes this approach ideal, as it allows business owners to retain control over their organizations. It also comes with fewer restrictions compared to venture capital.
The drawback is that interest rates can be relatively high. If the repayment plan is excessively aggressive, you may fall behind or channel excessive income into loan payments. It is crucial to select a lender who understands your business and industry and agrees only to repayment terms that you are confident you can follow through with if you choose debt financing.
Amazon’s $8 billion term loan in January 2023 is a clear example of debt financing. The loan, backed by banks like Toronto Dominion, DBS Bank, and Mizuho Bank, was used to support general business needs such as capital spending, paying off debt, acquisitions, and working capital.
Extending Your Runway for Long-Term Success
By using these startup funding strategies, startups can better handle the financial challenges of long fundraising cycles and give themselves more time between VC rounds. Whether it’s cutting costs, growing revenue, or exploring non-dilutive funding options like venture debt or revenue-based financing, founders can raise the startup funding they need while keeping control of their business. Cheqly provides venture debt as a flexible solution that preserves ownership while helping startups grow. Start now and scale your business on your terms.