2023 will bring crisper methods for evaluating startup success

Welcome to TechCrunch+ Tuesday

You don’t need to be an economist to appreciate the myriad forces placing downward pressure on startups today.

Setting aside the legions of investors keeping their powder dry, is your yearly revenue growing faster than the inflation rate? What percentage of your sales team has experience working during a downturn?

Amidst the angst, there’s some good news: investors are adjusting expectations to meet the new reality, which means “crisper methods for evaluating success will emerge,” predicts Lonne Jaffe, managing director at Insight Partners.

Instead of chasing growth like a plant reflexively bending toward the strongest light, he says founders should prioritize more meaningful “efficiency metrics,” such as:

• Gross retention rates
• Lower CAC
• Average revenue per sales rep
• High gross margins

Looking ahead, he recommends that founders start considering M&A options now before a predicted wave of consolidation hits the private markets in the coming months and also examines why startups in “areas of tangible innovation” like generative AI will have a “relatively” easy time fundraising.

“We’re entering 2023 with a great number of known issues and a constrained ability to forecast what’s ahead,” says Jaffe.

“One thing’s for certain, though: This year will be more about nailing it than scaling it.”

Thanks very much for reading,

Walter Thompson
Editorial Manager, TechCrunch+
@yourprotagonist

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A timeline for startup M&A processes: Key steps and factors to consider

I’ve worked with many early stage founders, and they all had one thing in common: each was absolutely, completely convinced that they could successfully build and scale our company.

In reality, “not all companies are best positioned to go it alone, and that’s okay,” writes Vishal Lugani, general partner and co-founder at Acrew Capital.

In a detailed guide to the M&A process, Lugani offers a week-by-week deal timeline that breaks down every step between sourcing offers and post-close integration.

A lot can happen over the months it can take for a deal to close, so the article includes strategies for selecting an acquirer, maintaining product momentum, and managing your team (and investors!).

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How can fintech startups outlast the VC winter?

“Everything else being equal, embedded banking startups and new fintechs will live and die on the basis of the user experience they provide,” says Peter Hazlehurst, CEO and co-founder of Synctera.

Because so many fintech investors are seeking startups that already have “concrete customer traction,” Hazlehurst shares proven tactics for gathering user feedback that can help companies get an MVP out the door in weeks instead of months.

“By drilling down to a lean, mean, meaningful MVP, startups can position themselves to reach the next leg of their journey,” he writes.

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5 cloud trends to track in 2023

Despite the downturn, Gartner estimates that global IT spending will reach $4.6 trillion this year, a year-over-year increase of 5.1%.

Josh Berman, president of C2C Global, has identified five trends that cloud technology startups should keep in mind as they create product, fundraising and hiring plans for the new year.

“The promise of these technologies is too significant to ignore,” writes Berman.

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A flat year for crowdfunding isn’t a bad sign at all for early-stage startups

The global equity crowdfunding market slowed in 2022, but it certainly did better than venture funding, reports Rebecca Szkutak.

Even though crowdfunding fell from $486 million in 2021 to $426 million last year, “I’ve seen a lot more Y Combinator companies, Techstars and venture-backed companies,” said Krishan Arora, CEO and founder of the Arora Project.

“They look at it for getting another $2 million, $3 million, in a bridge round,” he said. “There is more higher quality deal flow trickling into this space.”

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