Five Ways Seed Funding for Your Startup Will Change in 2024 RazeTeam November 9, 2023
five ways fundraising will change in 2024

Five Ways Seed Funding for Your Startup Will Change in 2024

Author: Ed Kang

As a seasoned startup advisor and founder with seven successful funding rounds and two exits, I’ve witnessed the cyclical nature of seed funding firsthand. As we enter 2024, the landscape for startup financing is markedly different from the frothy market conditions we saw up until 2021. It’s a pivotal moment for founders navigating the choppy waters of early-stage funding.

Before I continue, I think it’s important to accept that at least 80% of what you’ve been told or have learned about raising pre-seed to seed funding is obsolete. If you’re a first-time startup founder, throw whatever “gospel” of fundraising you hold dear away. To be more direct, as of this writing, the investor landscape for startups has wholly shifted and has not settled yet. There’s a “new normal,” but nobody knows what that new normal is yet. And anybody who tells you otherwise makes risky assumptions or lies to get something from you.

With that out of the way, here are five ways seed funding has and continues to evolve for 2024.

1. The End of Easy Money

Gone are the days of easy capital. The downturn in IPO performances and the tribulations of financial institutions (think Silicon Valley Bank) signaled an end to the previous cycle. With interest rates climbing, the cost of capital has surged, making investors more cautious. As a founder, understanding this tightened purse-string environment is crucial for setting realistic expectations.

2. The New Funding Mantra: Do More with (Way) Less

Investors are no longer seduced by growth at any cost. Not to mention the fact capital is not cheap anymore, so every dollar must generate more ROI sooner than ever before. The mantra now is “do more with less,” emphasizing a clear path to profitability. Founders must pivot from the previous growth-centric strategies to those focusing on sustainable development and meticulous cash flow management. What it means for seed-stage companies is that the sooner you can show revenue, even if it’s a little, the better.

3. An Economy in Flux

As we navigate through 2024, economic struggles and socio-political uncertainties loom, potentially triggering black swan events (think Israel-Palestine, China-Taiwan, or the Chinese real estate bubble). Despite this, specific indicators like subsiding inflation and a fresh wave of IPOs hint at the inception of a new cycle. But also, the shadow of an election year casts uncertainty in the market, a factor every founder must account for. That’s why I predict more of a “wait and see” approach until early 2025. Therefore, the founders that can outlast the rest will become the last-startups-standing to soak up the first waves of fresh, optimistic capital.

4. Innovative Funding Structures

Equity is no longer the sole route to raise capital. Alternative financing methods, such as debt financing and revenue-sharing agreements, are gaining traction. These avenues offer the potential to access funds without diluting ownership. As a founder, exploring these options could be strategic, especially in a tight-fisted investment climate.

5. Perpetual Mini-Rounds Versus Big Staged Rounds

A founder I know showed me how their startup, using crowdfunding, raises year-round versus following the traditional fundraising stages. With new structures like revenue share, I think more founders will take this route by automating fundraising for a steady stream versus one massive wave at a time. Of course, this assumes the startup generates revenue, but I predict it will make fundraising much more manageable.

The Takeaway for 2024: Building Ventures with Profitability in Mind from the Get-Go is the New Normal

In these stringent times, only the startups that demonstrate an ability to thrive, not just survive, will capture investors’ interest. Proving to potential investors that your business model can withstand economic headwinds and still generate profit is imperative. Those who make it will become well-positioned to reap the benefits when the market returns to favorability—as it always does.

It means that startups will look drastically different from what we’re used to seeing for the past decade. While the principles of solving problems with innovation remain the same, think about it. Web 1.0 was all about getting information online. Web 2.0 was about creating socializing. Then, Web 3.0 promised ownership that would change everything. But then generative AI came along as the bottom fell out of those promises. To make a bold claim, we’ll see a combination of Webs 1.0 plus 2.0 plus 3.0, all in one (Web 6.0?). But who knows? We can only (excitedly) wait and see.

In summary, while the seed funding environment of 2024 presents its challenges, it also offers new opportunities for shrewd founders to stand out because they’re prepared for the new normal. The successful founders of tomorrow will adapt to these changing tides with agility and foresight, crafting ventures that grow but also profit. As we brace for the year ahead, remember that it’s not just about weathering the storm but also being ready to sail when the winds change.

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