Startup Funding in Recession: What You Need to Know and Do

May 24, 2023 yasir saeed 0 Comments

Table of Contents

The Biggest Problem for The Tech Startups in America and Europe:

One of the most significant problems for tech startups in America and Europe is the difficulty of raising handsome funding rounds, especially for deep-tech startups that require more capital and time to develop their products. The reason for this problem is the lower supply of late-stage capital and the lower risk appetite of investors and customers in Europe compared to the US.

The US has a larger and more mature VC market that can provide more funding and support for deep-tech startups, as well as a more receptive and innovative customer base that can adopt new technologies faster.

One possible solution for this problem is to increase the availability and accessibility of late-stage capital and risk capital in Europe as well as to foster a more collaborative and supportive ecosystem for deep-tech startups.

That could involve creating more specialized funds and platforms that can connect deep-tech startups with qualified and experienced investors, mentors, partners, and customers. It could also involve encouraging more cross-border collaboration and knowledge sharing among deep-tech startups, investors, corporates, universities, and governments in Europe and beyond.

One Real Example

One real example of a deep-tech startup that faced this problem and found a solution is Graphcore, a UK-based company that develops AI chips and systems. Graphcore struggled to raise funding in Europe due to the lack of investors who understood its technology and vision. 

It eventually raised $200 million from a US-based VC firm, Sequoia Capital, which gave it the resources and credibility to scale up its operations and expand its global presence. 

Graphcore also partnered with Microsoft, Dell, and other tech giants to integrate its products into their platforms and reach more customers. Graphcore is now valued at $2.8 billion and has become one of Europe’s leading deep-tech unicorns.

Fund Raising Strategy in Recession Period

There are different stages of startup funding that entrepreneurs can adopt to raise capital for their ventures. Here is a brief overview of these stages:

1- Pre-seed Funding Stage:

This is the research phase of beginning a startup. During the pre-seed stage, you need to answer questions such as:

  • Is your idea viable?
  • Has your idea been done before?
  • How costly is your venture?
  • What kind of business model will you use?

You may utilize your private resources, such as savings, personal loans, or crowdfunding, to fund this stage. You may also seek help from friends, family, or mentors who can offer advice or support.

2- Seed Funding Stage: At this stage, your idea is an actual business with some customer traction. You need funds to:

  • Develop your product,
  • Hire your team,
  • Market your service.

You may seek funds from angel investors, seed funds, incubators, or accelerators who can provide you with capital, mentorship, and network. The average seed funding round in the US was $2.2 million in 2020.

3- Series A Funding: This is the first round of venture capital (VC) funding. In this stage, you have a proven product-market fit and a scalable business model. You need funds:

  • To Grow your Customer base,
  • Expand your team,
  • Enter new markets.

You may seek funds from VC firms, corporate investors, or strategic partners who can provide you with the maximum amounts of capital and expertise. The average Series A funding round in the US was $15.6 million in 2020.

4- Series B Funding: This is the second round of VC funding. At this stage, you have established a strong position in your market and have a clear vision for the future. You need funds:

  • To scale your Operations
  • Improve your Product
  • Increase your revenue

You may seek funds from VC firms, corporate investors, or strategic partners who can provide you with more capital and guidance. The average Series B funding round in the US was $33 million in 2020.

5- Series C Funding: This is the third round of VC funding. At this stage, you have a successful and profitable business ready to dominate the industry or explore new opportunities. You require funds to:

  • Acquire other companies,
  • launch new products,
  • Enter new markets.

You may seek funds from VC firms, corporate investors, hedge funds, private equity firms, or banks that can provide you with a huge share of capital and connections. The average Series C funding round in the united stat was $59 million in 2020.

6- Series D Funding and Beyond:

These are unique rounds of funding that are not common for most startups. They may occur when :

  • A startup needs more capital to achieve its goals before going public or being acquired,
  • When a startup faces some challenges
  • A Sudden Setback that requires additional funding.

These rounds may involve existing or new investors who can provide more capital and support.

7- Mezzanine Funding and Bridge Loans:

Mezzanine funding is a type of debt financing that is frequently used by startups: To bridge the gap between their current stage and their next stage of funding or exit.

Mezzanine funding is a form of subordinated debt that is usually convertible into equity if the startup fails to repay it. Bridge loans are short-term loans that are usually secured by some assets or future revenues of the startup.

8- IPO: This stands for initial public offering, which is the procedure of offering shares of a private company to the public for the first time. This is a way for a startup to raise a handsome amount of capital from public investors and gain more exposure and credibility.

However, going public also involves more regulations, disclosures, and costs for the startup.

If a Tech Startup Cannot Raise Funding from External Sources: Some Alternatives , such as:

1- Bootstrapping:

This means relying on your personally owned resources and revenues to fund your startup without taking any external investment or financial aid. This strategy can give you more command and ownership over your business, but it can also limit your growth potential and resources.

2- Crowdfunding:

This means raising funds from a huge number of people who support and like your business idea or product through online platforms such as:

  • Kickstarter,
  • Indiegogo,
  • or GoFundMe.

This can help you to validate your idea and market your product & services to potential customers, but it can also involve fees, risks, and obligations for the startup.

3- Grants: This means acquiring money or funds from:

  • Government Agencies,
  • Foundations
  • Organizations

That supports specific causes or sectors related to your startup. This strategy can help you fund your research and development without giving up any equity or interest, but it can also involve strict eligibility criteria, application processes, and reporting requirements for the startup.

To Survive in the Market without External Funding, a Tech Startup may Need to:

1- Focus on generating revenue and cash flow as soon as possible.
2- Keep the expenditures and other costs low and optimize the resources efficiently and effectively.
3- Build a loyal customer base and retain them with good products and services.
4-  Innovate and differentiate from the competitors and create a competitive edge in the market.
5- Seek strategic long-term partnerships and collaborations for fundraising.
6- Leverage the latest technology trend like online platforms and tools.

The best Strategy of Fund Raising for Tech Startups in 2023 of Recession Period

There are some strategies that tech startups can use to raise funds in a recession period, such as:

1- Jumpstart Your Fundraising efforts with a crowdfunding campaign. You can use online platforms such as:

  • Kickstarter
  • Indiegogo
  • GoFundMe

To raise funds from a large group of people who support your business idea or product. This strategy can help you validate your idea and market your product to potential customers, but it can also involve fees, risks, and obligations for the startup.

2- Consider Equity Crowdfunding to raise capital. This is a form of crowdfunding where you offer shares of your company to the public in exchange for funding. This strategy can help you access a more extensive pool of investors and raise more capital than traditional crowdfunding, however, it can also apply more regulations, disclosures, and dilution for the startup.

3- Talk to Mentors with Startup experience in a recession. You can seek advice and guidance from people who have successfully navigated the challenges of raising funds for startups during a recession time or economic downfall. They can help you refine your pitch, connect you with potential investors, and provide you with valuable insights and feedback.

4- Hire Freelancers to Save Time, effort, and money. You can outsource some of the complex tasks which are not core to your business, such as IT troubleshooting, marketing, design, or accounting, to freelancers who can offer quality work at lower costs. This strategy can help you save budget and focus on your product development process and customer acquisition.

5- Approach Banks for debt funding. You can apply for loans from banks or other financial institutions that can provide you with capital at affordable interest rates. This strategy can help you fund your business operations without giving up any equity or control over your business, but it can also involve repayment obligations and credit risks for the startup.

6- Prepare for a Recession by extending your runway. You can reduce your expenses and optimize your resources to make sure you have enough cash to survive until the next funding round or exit. You can also take on a line of credit to augment your equity capital and provide you with more flexibility and liquidity.

7- Embrace Your Best Customers. You can strengthen your relationships with your existing customers and try to sell more to them or retain them for longer. You can also seek positive feedback from them and utilize it to improve your product or service. You can also leverage their referrals and testimonials to attract new customers and retain existing customers.

8- Innovate and Differentiate from the competitors. You can offer something unique or valuable that sets you apart from the other players in the market. You can also explore new opportunities or niches that are underserved or emerging during the recession.

Case Study

One live example of a tech startup that raised funds during a recession is Airbnb, an online platform that connects travelers with hosts who offer accommodation. 

Airbnb was founded in 2008 during the global financial crisis and faced many challenges in raising funds from traditional investors who were skeptical about its business model and market potential. 

Airbnb decided to use crowdfunding as a strategy to raise funds and awareness for its platform.

 It launched a campaign called Obama O’s, where it sold cereal boxes with the image of Barack Obama during his presidential campaign. It sold 800 boxes at $40 each and raised $30,000, which helped it bootstrap its operations and attract more attention from the media and the public.


Raising funds for tech startups during a recession period can be challenging but not impossible.

 Tech startups should be creative-minded, flexible, and resilient in finding ways to fund their ventures and grow their businesses in challenging times. They also need to be prepared for the uncertainties and risks that come with operating in a volatile economic environment.

How Zepto Systems Can Help? 

Gain the competitive edge in this challenging recession period with Zepto Systems! Our cost-effective IT solutions and highly skilled remote software developers are here to empower your new tech startup. Don’t let financial constraints hold you back from reaching your goals. Contact us today and let us help you navigate these uncertain times with our reliable and affordable services. Together, we’ll ensure your success and growth in the face of adversity. Don’t wait, seize the opportunity now!