Claire Trachet, CEO of Business advisory, Trachet, has become a specialist in transforming the outlook of tech startup businesses. Having shown great resilience throughout her career, the M&A expert has much wisdom to share about bouncebackability for startups navigating their first recession.

Through her experience as a fractional CFO, Claire has become instrumental in reshaping the growth journey of various companies in the tech arena, having spearheaded exit deals with a compound worth of around $500 million earning her the UK’s Women of the Future award in 2018 for Technology and Digital.

As a Fractional CFO, Claire is used to walking into a scenario which is typically time constrained, maybe the company will only have a short runway unless it can be extended, which can lead it to an exit with unfavorable conditions. Trachet believes in implementing a dual track plan – this means carrying out a fundraising round while simultaneously looking for M&A opportunities. In this way, if one avenue fails, startups will still be in the later stages of their other option, and all is not lost. In what can be an unpredictable market currently, the importance of this approach cannot be understated.

However, in today’s ecosystem, the landscape has shifted towards what was once a mark of shame for startups, debt. Startups which might’ve raised at favourable conditions but can’t raise capital any longer are increasingly taking on venture debt. According to Trachet, venture debt is encouraging founders to build rather than grow – but what is it and how will it help startups?

Trachet explains venture debt as a type of financing that is offered to startups and other early-stage companies, similar to a traditional loan – usually repaid over three years. However, venture debt is typically offered to companies that are considered high-risk by traditional lenders, such as startups that have not yet generated significant revenue or established a track record of profitability. Venture debt can be an attractive option for these companies because it is generally easier to obtain than equity financing, and it does not dilute the ownership stakes of the company’s founders or investors.

According to PitchBook, US venture debt reached $26.5 billion in value at the end of November, representing 1,925 deals between startups and venture-debt lenders. Pitchbook’s data shows Q2 of 2022 had more debt value than over the course of the past 10 years – marking a clear shift for startup financing in 2023.

The pressure of debt means startups will focus on building innovative products that stand the test of time by finding product-market fit at an early stage. This is turn will solve problems for actual customers and early adopters instead of increasing headcounts (overheads) and chasing growth.

Claire Trachet, founder of Trachet, said:

“During this global economic slowdown fueled by the pandemic, the war in Ukraine and 2022’s socioeconomic and political turmoil, I believe the best way to create value to the highest extent for startups is by helping them focus on their products and get disciplined about spending.

“Access to appropriate counsel is limited for many start-up founders with established businesses, enlisting the help of an experience CFO is crucial towards developing growth for startups post Series A and B during the current recessionary period and venture capital pullback of last year.”

Speaking on the challenges startups face in 2023, Trachet added:

“Startups now have to do with lower cash reserves as traditional venture-capital funding has become diluted, hence these organisations have seen their growth potential tethered, a trend marked by the low valuations received throughout 2022. This puts the business’ survival and innovation throughout the sector at risk.”

“For smaller companies and startups, extending the runway and raising finance will rely on a crucial element, flexibility”

“Most organisations, regardless of size, have inefficient layers – removing these not only improves runway outlook, but it also increases the attractiveness to outside investors for those looking for a potential exit.

“Nevertheless, certain companies and startups should see the following year as a time to leverage the current landscape and become more aggressive through the acquisition of undervalued add-ons or competitors.

“For 2023, startups need to focus on raising at favourable terms following the bubble shrink, with a firm grasp of a valid business and revenue model, rather than flattering headlines and PR, or heavy staff growth”