Competing in an increasingly crowded space can be nerve-wracking. Competing in an increasingly crowded space amid a challenging fundraising environment is even more nerve-wracking.
We all know that cash is not nearly as readily available in 2022 as it was in 2021. This puts startups in the position of having to compete without losing their minds — or runway.
At TechCrunch Disrupt 2022, I interviewed Ramp CEO Eric Glyman, Airbase CEO Thejo Kote and Anthemis partner Ruth Foxe Blader on the topic. Glyman and Kote shared how they’re working to preserve capital, while Blader offered up some of the advice she’s giving to her portfolio companies. And she didn’t hold back.
For the unacquainted, Glyman and Kote both run startups in the spend management space. As friendly competitors, they acknowledged that while the category is not a winner-takes-all one, it’s still important to differentiate and continuously innovate.
Said Glyman: “One of the things that we’ve done in our business has been to look at the cost of acquisition — to fully earn back the cost deployed — and we’ve reduced that threshold,” he said. “And so our view is that we want to grow as fast as possible, but at a much faster tolerance — in that same way where you can earn higher yield elsewhere, applying that rigorous framework to where you choose to deploy capital. We think this is the right approach for this environment.”
For Kote, it’s mostly about focus. Airbase, he noted, has historically targeted the midmarket and early enterprise space. He referenced “the crazy 2021 period where there was all the insanity around investment in this space,” with investors “willing to pay 100x, 200x multiples.” Rather than frantically try to change Airbase’s model to meet expectations, Kote said the startup kept operating the way it always had.
“So a silver lining from a focus perspective coming into this year for us has been, ‘You know what? None of that matters,’” Kote said. “We were very focused on subscription revenue and high-margin subscription revenue and net ARR — not gross ARR. So we have really stuck to what we have always done, which is focused on the midmarket. And that meant that we freed up resources in a bunch of ways, giving us additional runway.”
Meanwhile, Blader — whose firm invests at all stages of the life cycle — shared her belief that “this is a sentiment-driven industry, and when the music’s playing, everybody dances.”
“The people who danced in 2021 and raised a bunch of capital — enough capital to hit breakeven with maybe a little bit of burn cutting, are probably feeling pretty good,” she said. “And the folks who really either under-raised or didn’t raise or raised capital at a valuation where they’re really not going to be able to close the gap between where multiples were and where they are now, are slightly panicked.”
Not only are founders “panicked,” she added, but boards are, too. But in her view, staying calm during turbulent times is more crucial than ever.
“If you’re an investor in the audience, I would say that when you bring that panic or that anxiety level into the boardroom, you’re not helping anyone. And on the founder side — don’t lose control of your board,” Blader warned. “Controlling your destiny is partly about positioning yourself in the board context, as a shareholder, and not being the operational CEO in the boardroom who is brainstorming with the board about ‘should we do this, or should we do that.’ I see a lot of that in these panic moments.
“It behooves everybody to be really lucid about the macro environment that we’re entering. It’s likely to be long-lived, and it’s very important to be judicious but not lose sight of your goals and the reason you founded the business in the first place.”
And that holds true for investors as well, she believes.
“I don’t think panic helps. And I think that founders appreciate investors who do remain calm and just sort of continue with business as usual.”
When it comes to competing, both Kote and Glyman claimed to be more worried about growing their own companies than scrutinizing what their competitors are up to.
Said Kote: “Obviously, we watch everybody in the space. … There are so many companies nowadays it’s hard to keep track of just all the ones that keep popping up. It’s the product marketing team’s job to do competitive analysis. … But beyond that, I don’t wake up in the morning thinking about competition, because as I said earlier, this is a massive, massive market. Every business spends money.”
In Glyman’s view, “being customer obsessed is a lot more important than being obsessed about competition.”
Still, Blader believes that it’s important to be mindful of competition while “always building.”
She said: “If you do have an important competitor, I think you can learn a lot from great sports teams. You want to be kind of sportsmen. You want to really respect the competition and assume that they’re better than you are, and be out practicing every day and working super hard to build the most resilient product that you can build.”
Still, in some cases, cutting spending is inevitable. The investor advised that a founder really needs to understand what their company’s core advantages are and “what is essential.”
“You’re not going to cut your way to a billion-dollar business. That said, I think, in this environment, everyone probably needs to be taking a look at runway and just understanding the different levers that they could pull if necessary,” Blader said. “I prefer to ask companies to look at short-term objective setting and having moments where we assess if we need to make dramatic changes or even incremental changes to the business on the basis of achieving short-term goals.”
She also points to venture debt as a meaningful alternative to raising venture capital.
“I think that the venture debt market has continued to be extremely important; particularly for companies that did raise a substantial amount of money recently, it’s the best time to go out and get debt,” Blader advised. “So I would definitely be developing relationships with venture debt providers.”
She also warned that there are no sacred cows in an investor’s portfolio.
“I think that is something that is going to be a difficult and painful experience for some people to learn during this cycle that we’re currently in,” Blader said. “Investors are not obligated to follow on in investments that they’ve made. And I think that where the market has been frothy and it’s been actually quite easy to raise capital — there’s a sense that that capital will always be forthcoming, especially from the folks who are already around the table. And that’s just not true.
“In the end, it’s very important for founders to communicate with their investors about the conditions under which they will continue to fund the company. And to communicate about that frequently. It’s very important also in terms of setting expectations around when it’s appropriate to go to market for the next fundraising round or what outside investors will be looking for. That’s the principal contribution that an investor can have to a company — to help it understand how investors think and what that capital or equity narrative should be.”
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