Times are changing, and it’s no secret that the current economic downturn is taking a toll on startups. Founders are forced to find innovative ways to keep afloat in rough waters, where many assume that venture capital funding is few and far between. But is it?
That’s precisely what we unpack in our inaugural episode of the Fintech Corner podcast, “How to De-Risk Your Startup, The State of VC Funding, and Brett’s Advice for Founders.”
Our host and Trovata CPO, Joseph “JD” Drambarean, sits down with Brett Turner, Trovata founder and CEO, to discuss some of the sweeping fintech and entrepreneurship headlines that are currently top of mind for many.
In the episode, Drambarean and Turner talk about:
- The state of the economy for startups
- Venture capital funding (or lack thereof)
- Turner’s experience raising Trovata’s series B
- Smart steps founders should be taking right now
- How Trovata can help companies with their financial operating plans
Plus, you can learn more about Trovata’s story from the start to now.
Here are four significant takeaway tips for de-risking your business from the episode:
1. A Solid Strategy and Team Chemistry Are Key
When you have a solid strategy in place, coupled with team chemistry, your business can–and, ideally, will—withstand the test of a bad market. That’s why it’s important to make sure that the foundation of your business and the working relationships between your people are strong.
“When you go through these troubled periods… it just exposes things that maybe aren’t all that solid,” Turner says, giving the example of a winning sports team.
When teams are on winning streaks, we seldom question the conversations happening in the locker rooms or whether or not there’s team chemistry. However, we do question losing teams. And that sort of exposure tends to exacerbate the team’s failures. All of a sudden, Turner says, “teams just start to fall apart.”
“I think that’s a little bit indicative of what goes on also in the market—whether it’s in the startup world, innovation, whatever,” he explains.
“Tough times test your mettle. They test the very pillars or backbones that are holding you up. When the winds start to change, you need to bring solid operator skills to the table. If that substance isn’t there, it doesn’t mean the business will fall apart, but the tough climate will start to expose a shaky foundation and further weaken it.”– Brett Turner, Trovata Founder and CEO
Trovata, for example, took early steps to build that strong foundation. We partner with banks instead of disrupting the banking space. Plus, we’ve invested a lot in innovative technology to help de-risk the business in today’s economy.
But even Turner admits to feeling worried amidst recent mass tech layoffs.
“Worry sinks in a little bit, of course—I think that’s just natural,” he shares, adding that the details matter. “But it really comes down to partners’ execution… Is your plan sound, your go-to-market sound, your pricing sound, etc., etc.?”
Of course, however, even a solid foundation isn’t guaranteed success. Consistent execution—earning your success every single day—is what matters most.
And then there are factors, like a strong foundation and team chemistry, that “shore up” your success, Turner says. So, when you reach the fundraising phase, even if you don’t get the valuation that you want, you have legs to stand on.
“It’s really easy to high-five each other when sales are crushing it and money is rolling in, and then, when everything turns around, you kind of start to look at everybody left, right, ‘Is it your fault? They’re doing something wrong.’ Chemistry is such a big thing… At Trovata, we have such an amazing cast of characters. We’ve been blessed in that way.”– Joseph “JD” Drambarean, Trovata CPO and Host, Fintech Corner
2. Show the Fundamentals for Funding
There were a lot of fintech startups that didn’t receive funding last year—but Turner believes this is because they “weren’t showing the fundamentals” or “actual growth.”
“They weren’t showing sound business mechanics from a go-to-market perspective,” he says, adding that these mechanics are an area of focus for venture capitalists.
Because there were so many high-growth startups last year and the year prior that were fueled by an unprecedented injection of capital into the economy, Turner explains that “it was easy to be kind of rolling around in the good times.” Today, there’s a bigger barrier for getting capital. Still, however, there are successful startups—like Trovata.
There are barriers, but there’s also a lot of capital still left in the market and on the sidelines—particularly, committed capital that’s still being paid.
But the clocks don’t start until venture capitalists actually put their money to work in companies, and they’re smartly taking their time and being cautious in this market. It’s important to note that they can’t have idle cash laying around since they’re graded on how well they put it to use.
Some venture capitalists may even be opportunistic, investing now when valuations are down to get better deals.
“We’re not out of the woods yet—I think [the slowdown] is gonna continue for a while, then, you’ll start to see a pretty significant snapback as that starts to play out.”– Brett Turner, Trovata Founder and CEO
The key is having a “real viable business,” adds Drambarean, who says that startups have had a “go-go-go mentality” over the last few years. They’ve assumed that it doesn’t matter what their ideas were or if there were even market fits because, if they built the products, customers would come. And the same is still true today, he explains, so long as you have a real business.
“It’s still the case that you will find an audience; you will find customers. You just have to have a real viable business. And if you don’t, you’re not going to get funding.”– Joseph “JD” Drambarean, Trovata CPO and Host, Fintech Corner
3. Establish a Financial Operating Plan
While many startups start with innovation in mind, typically with engineering backgrounds, there’s more to it than that to be successful. There’s also a lot of know-how that you need, Turner says. From there, venture capitalists will help with how to run the business, spend the capital, hire effectively, and more.
“All of those moving parts are part of the operations of the company,” he explains. “And finance, of course, runs that.”
The biggest cost is generally people since, thanks to advancements in technology and automation, everything else is typically quite efficient these days, he says. That’s why a financial operating plan is so important.
“I’m excited [and] I’m hopeful about all the things that we’re going to deliver from a product standpoint, but it takes people to get there; it takes time—and all that means is that you need capital to be able to work through that process,” he explains.
“If you don’t have a good financial roadmap, if you don’t have a financial operating plan where you know where the money is allocated to, you’re kind of winging it in some ways.”– Brett Turner, Trovata Founder and CEO
Of course, you don’t need to spend exactly according to the blueprint, but the blueprint should give you the confidence you need to spend smarter. It should help you to manage and, where possible, reduce cash burn.
With your financial operating plan, you’ve already stress-tested much of your budget and understand where the elasticity is, in case you spend a little bit more here or a little bit less there. In other words: Having a financial roadmap means knowing where you stand.
“When you’re operating blind and don’t have that financial operating plan to go by, confidence starts to run thin, people ask a lot of questions, and you start responding in ways that aren’t inducing confidence,” he adds.
4. Leverage AI for Help with Financial Forecasting
“Brett is the brainchild of having built a piece of software, [Trovata], that helps manage cash, first and foremost, but also helps you build that kind of forward-operating, forecasting, kind of getting insights into whether or not you should be laying people off or whether or not you need to be tighter around spend in the various areas,” Drambarean says.
Turner adds that Trovata is all about democratizing this level of financial operating, forecasting, and planning for everyone.
“There are not that many financial operators to go around, or some are just not accessible or, they’re too expensive. In a platform [like Trovata] now, everybody can have that.”– Brett Turner, Trovata Founder and CEO
The only catch-22 is that you can’t replace those aforementioned business fundamentals with financial operations, Drambarean explains.
“At the end of the day, the best way to learn is to be in it, is to be kind of working through the motions of the business and figuring it out as you go,” he adds. “But there’s no replacing having great tools. So that’s why it’s such a gratifying experience being able to both help serve the community, but also be part of it in a startup.”
After all, AI is arguably the way of the future. Even Trovata leverages AI in daily operations.
The Bottom Line
The startup world looks a little different nowadays. And, as the market changes, founders need to change their ways with it in order to overcome venture capital funding barriers and inevitably ensuing concerns surrounding financial operating costs.
Following these tips from Trovata CTO, JD Drambarean, and founder and CEO, Brett Turner, can help you weather the storms.
For more sound startup advice, check out the full first episode of the Fintech Corner podcast here.