Convertible Notes and Startup Funding
February 12, 2025
Commercial banks all over the world have been forced to adapt to increasing changes in technology. This is because technological changes are shaking the very foundation of the commercial banking industry. However, since commercial banks have been reactive i.e. they have been responding to changes in the environment instead of proactively accepting them, a lot […]
Securitization is now becoming an integral part of the way in which international sporting franchises finance themselves. There is no doubt about the fact that securitization is on the rise in the sporting industry in almost every part of the world. This can be easily verified with statistics. However, it needs to be understood that […]
In the previous article, we have already seen what a variable lease is and how it is different from traditional leases which are used by retail companies across the world. We are now also aware of the manner in which variable leases are structured. We know that the popularity of variable leases has been rapidly […]
The debt ratio is the second most important ratio when it comes to gauging the capital structure and solvency an organization. This article provides an in-depth look. Formula Debt Ratio = Total Debt / Total Capital The debt ratio is a part to whole comparison as compared to debt to equity ratio which is a […]
In the previous article, we learned about the non-interest income at various commercial banks. We have also understood what these sources of non-interest income are and why they are preferred by many banks. It is true that there are several advantages to having sources of non-interest income. However, it is equally true that advantages are […]
Start-up businesses are affected by a wide variety of factors. Macroeconomic factors such as business cycles affect start-up organizations as much as they affect any other businesses. In fact, since start-ups are in a nascent stage, they face a bigger impact from these business cycles.
Start-ups that face recession or slowdown early after their inception have a significantly lower probability of survival. In this article, we will have a look at the various business cycle-related factors which impact start-ups.
Investors all over the world try to liquidate risky assets and buy safer assets such as treasury bonds and gold in order to survive the recession. Now, start-ups are rightly considered to be one of the riskiest asset classes. Hence, during a recessionary scenario, investors are less inclined to provide more funds to such businesses.
In fact, some investors may even try to liquidate their existing investments in order to cover their losses from other investments.
The problem is that start-up businesses survive on funding. Usually, start-ups only raise enough capital that they can reach the next milestone. Hence, start-ups often have to agree to a down-round and give away a huge stake of their business for a small capital inflow during the recession. This is the reason that many start-up founders reduce their burn rate so that they can make the same funds last longer and avoid raising funds during a recession.
For the start-up, this can be a golden opportunity. Start-ups are able to access top talent at a discount during the recession. Once the market gets better, a lot of these people do quit their start-up jobs and go back to their highly paid corporate jobs. However, start-ups have utilized the services of such personnel in order to train their other associates and improve the quality of their service. If a start-up has enough funds on hand, it can recruit the best talent in the market and set up a great foundation for its business.
It is common for companies to stop mass media advertisements during the recessionary phase. Instead, companies resort to event marketing and social media-based marketing which have a lower cost and have the potential to provide a higher yield. Guerrilla marketing requires a different skill set as compared to traditional marketing activities. Companies that are able to adapt to such marketing techniques are the ones that have a higher chance of survival.
The bottom line is that business cycles have a huge impact on start-ups. Some of the impacts are negative whereas the others are positive. Start-ups have to closely manage this impact to increase their chances of surviving the recession.
Your email address will not be published. Required fields are marked *