Jake is founding partner of BTV, one of our friends in the fintech seed investing world, who also hosts The Mint program for supporting pre-seed fintech founders. They're now accepting applications and introductions for their spring 2024 cohort. Jake was also co-founder of NerdWallet.

People tend to think of startups as creating something from nothing, but it’s more like finding order in chaos. A founder faces an infinite number of paths in front of them, each demanding an infinite number of decisions to be made, at random times, while the paths shift and curve and crisscross, backtrack, or dead-end in unpredictable ways. Meanwhile, in that chaos, almost all of those paths lead to abject failure, some number of them will lead to disappointment, and only an infinitesimal fraction will lead to success. 

A founder’s job is to pull on just the right threads at just the right times, to constantly be reducing risk and increasing optionality, buying more time to navigate more of those forks in the road, and ultimately finding the one path in all of that uncertainty that will lead to a generational company and create generational impact.

The Era of Easy Money that started with the global financial crisis (GFC), and snowballed exponentially until the Covid crescendo, led many to believe that the chaos was less chaotic and that the unpredictability was more predictable. The startup journey started to look more linear. Sam Lessin recently referred to it as a “factory line,” where if you just hit these milestones and showed that data, you could raise that next round of funding. And that next round was always the goal. We were building balance sheets, not businesses, and we were all led to believe that whoever had the biggest balance sheet would win.

So these last couple of years and the end of the zero interest rate policy (ZIRP) era were a rude awakening. Suddenly, too many companies realized too late that they were on the wrong path. They’d built a balance sheet but no business, and were accelerating towards a dead-end. 

At Better Tomorrow Ventures (BTV), we pride ourselves on being trusted coaches to the founders of more than 200 fintech companies we have invested in around the globe. My partner Sheel Mohnot and I both have experience building and exiting our own startups, during the last major financial crisis, and we’ve been in the fintech world since before people were really even calling it “fintech.” So we’ve seen a lot of things go right and wrong, for a lot of different companies, in a handful of different environments.

We both built our businesses at a time when capital was more scarce, and the skills and lessons we learned almost seemed obsolete as we transitioned to investing over the last eight years or so. But more recently, we’ve found ourselves dusting off the old lessons and the old playbooks and going back to startup basics. It’s a return to The Old Ways.

A passing storm, or a sea change?

I’m planning out a series of articles looking at where the startup community, and fintech community, have been and where we think they’re going. And in this first, I want to start with the topic that seems to have dominated most of my 2023 conversations: too many companies just aren’t moving fast enough.

It’s understandable that many startup founders felt shell-shocked after the whipsaw from the heights of 2021 to the depths of 2022 despair.

After a few years of frenzied activity where it felt like everyone was just sprinting from one fundraise to the next, the capital markets slammed into a wall. The cold-water realization that startups can't rely on venture funding as much as before seemed to happen overnight. Everybody moved to cut headcount and preserve cash at all costs.

But then there’s been a persistent feeling among startup founders that they need to "ride out the storm" and hope for better days and more open checkbooks. Everyone wants to believe the factory line will come back because that was easy and predictable.

I ask them: What if those days don’t come? How far can you take this without additional capital? Or can this business exist without a dependency on venture capital? The prevailing narrative in 2022 was all about cutting burn and extending runway, but no one stopped to ask, then what?

I think a lot of startup founders have to unlearn bad habits created by this era of easy money.  The secret sauce of successful startups has always been speed and sweat equity. Now is not the time to be timid.

Fundraising is not the goal – it’s a stay of execution

I think this was especially difficult for founders getting started in the last five years or so.  If you were able to raise money in that period, you likely have been fed one mental model for how companies should be built: build for what investors want to see, track growth with vanity metrics that look good in pitch decks, and mark company milestones with the word “Series.” With that framework, it makes sense that the mentality would be to wait until the venture and capital markets ride back in for the rescue. Meanwhile, hunker down and wait for the storm to pass.

Historically though, that's just not how great startups are built. Really, a fundraise should never have been a milestone. It’s a stay of execution. And it’s on founders to figure out how to make the best use of that extra time on this earth, rather than waiting for the next rescue.

So the point that I've been trying to get across is, this might not be a storm, but a sea change you can expect moving forward. Wait for funding? If anything, the bar for that next round of funding will likely be even higher than before. 

It's time to adapt to this new landscape and shed the belief that the past few years are a benchmark for the future. 

There have been encouraging signs with a few high-profile companies going public and funding in the AI space. But if you removed the AI from the story, there’s not much cause for celebration. Experts are worried about the lack of breadth in the market, as the top seven performing companies–including Apple, Alphabet and Amazon–make up almost a third of the S&P 500’s value. As of early November, the benchmark index has gained about 14% for the year, but the S&P 500 Equal Weight Index–which, as the name suggests, gives equal value to each company–was down almost 1% for the year. 

After the initial excitement over Arm and InstaCart IPOs, the market reaction has since been underwhelming. Interest rates are at the highs and still may climb. I think all the talk about "dry powder" ready to explode in the VC community is way overstated.

Sure, capital markets will eventually rebound. Perhaps even the glory days of low-interest-rate cash may return. But your company will sink long before ever seeing that landscape again.

Time to return to the fundamentals

This funding environment isn't an excuse to take it easy or go slow. Instead, you still need to be firing on all cylinders, you still need to be executing, and you still need to be shipping. You still have to set ambitious goals and find a way to grow. And you need to figure out how to do all of that with less capital and less headcount.

Speed of execution and a sense of urgency are everything. If you want to make the most of the capital and the time that you have, you have to move faster.

In other words, we’re facing a startup world that really isn’t that much different from 10 or 15 years ago.  It's a return to fundamentals and a stark departure from the excessive spending of the recent past.

Yes, making the transition to this tighter funding environment meant it was critical to cut cash burn, extend your runway, and have time to re-strategize your business. But now you've had time to do that, and you still need to grow. 

Look to the ‘old ways’ for growth

Growth is the lifeblood of startups. Without it, you die no matter how much runway you have. You have to unlearn bad habits of solving problems with capital and headcount, and get back to the old ways of "doing more with less."

When we were starting NerdWallet, Tim Chen and I wrote all the code, even though we didn’t really know how. We managed our own databases and servers, which we’d never done before. We wrote all of our own blog posts and did all of our own PR and marketing, which we certainly weren’t experts in. We had to learn from first principles how to build, how to sell, how to hire, how to manage, and how to scale. There were only two of us, working around the clock, learning constantly, bootstrapping, and not getting paid until we figured out how to make money. A lot of things went wrong, and a few things went very right, but we won those initial battles with ingenuity, not capital.

If there's no way to grow your business without spending more money than you have, or no path to profitability that can help you control your own destiny, time to rethink the entire business. A lot of marginal businesses were allowed to be built and survive on endless free capital, but those days are over.

It's a call to return to the roots of entrepreneurship, where resilience, adaptability, and resourcefulness reign supreme. This requires creativity, being hyper-focused on product-market fit, and wearing a lot of hats rather than hiring for everything. 

Startups that thrive in this new landscape will be those that combine the lessons of the past with a fresh perspective on growth and sustainability.

This funding climate is not a red light to slow down, it’s a time to race like the life of your business is on the line–because it is.