New data released by Embroker recently found that startup founders are relying on messaging professionals, insurance, cash and layoffs in the post-SVB, pre-recession economy, after 84% of startup founders report experiencing an impact from the historic closure. The data comes from Embroker’s 2023 Risk Index Report, examining the risks startup founders are facing, and how they mitigate them.
To achieve these results, Embroker surveyed more than 500 VC-backed startup founders in March 2023. The survey was completed online and responses were random, voluntary and anonymous.
PROFESSIONAL PLANS WITH PERSONAL CONDITIONS
In 2023, founders have two main goals: grow their product and grow their business. More than a third (34%) of founders identified these as their key success metrics. To reach these goals, founders are willing to give up their time and money: 37% reported a willingness to set aside their original vision and give up their own cash if it meant success. While these require a great amount of sacrifice, there is still more that they will not give up.
Founders are unwilling to do anything that jeopardizes their reputation. While it showed only a 2% increase year-over-year, it came in as the leading factor founders refuse to sacrifice this year, at 35%. Year-over-year, founders also appear to have a stronger sense of self; 33% of founders report they are unwilling to sacrifice personal relationships, up from 24% in 2022.
“Historically, founders have looked to their VCs for far more than funding, seeing them as reliable, strategic advisors who can provide counsel and guidance across the issues and challenges founders encounter,” said Embroker’s Chief Revenue Officer Ben Jennings. “The changing landscape of 2023, punctuated by the unforeseen fall of SVB and others, has shifted that reliance inward — guiding founders to lean more on their individual networks, internal data science analysis and personal intuition.”
INSIDE OUT, RISKS TAKE FOUNDERS TO TASK
When prompted on their biggest internal risks in 2023, founders revealed a personnel struggle; 25% have struggled with hiring in 2023, and 30% reported struggling with remote workers. As these risks are largely people related, so too are their solutions. Up year-over-year is deploying human resource (HR) programs: 30% of founders reported this as a leading solution.
These problems revolve around people and the challenges that remote work, collaboration and communication create. However, this year, fewer founders accessed mental health resources; in 2022, more than a quarter of founders reported mental health resources as a risk mitigation method, dropping to just 6% in 2023.
Founders are experiencing an evolving market, and the risks that threaten them from the outside are always changing. A new risk added in this year’s index was “issues surrounding social movements” that either directly or indirectly target them or their business — which tied for first, with inflation as the other biggest risk going forward. To prevent or alleviate public perception, more startups are choosing to engage with PR firms and marketing professionals.
CASH, COMMUNICATIONS AND CUTBACKS: REACT TO SVB, PLAN FOR A RECESSION
One of the biggest external risks so far in 2023 was the collapse of Silicon Valley Bank — the second largest bank failure in U.S. history. This closure impacted 84% of VC-backed startups. Half of founders (50%) reported accessing these measures, including insurance, after experiencing SVB’s collapse.
While retaining their capital was the first objective after the closure, founders recognized the importance of communicating the impact, and their response, to stakeholders. Nearly half of founders (46%) engaged with a public relations agency or professional to manage their messaging after experiencing SVB’s impact, showing that founders, whether on their own or at the advice of their advisors or investors, recognize that messaging is an important aspect of risk mitigation.
SVB’s shuttering — and others like it — is an omen for what many have been warning of for months: a recession. Founders are aware that tougher economic times are ahead, and several are taking significant steps to prepare. Many have equipped themselves with a nest egg of liquid capital; 44% have plans to float on cash they’ve set aside for such emergencies, showing that founders feel largely equipped to manage these difficulties. However, liquid capital is only a temporary solution to a problem that has no clear end date. The second leading solution for weathering a recession is layoff plans, which 38% of founders named among their recession solutions.
In just a year, risks can change to fundamentally alter founders’ perceptions of their business and themselves; they realize that risk is inseparable from growth, and how they prepare and react is key to a successful business. Founders may find new ways to mitigate risks, changing the startup landscape in the future, but risk will remain an unavoidable aspect of business. Today’s founders can more strategically balance internal and external risks via thoughtful solutions, carrying them through tough markets and into a more profitable future.