Why this startup cancelled its capital raise

Deciding not to raise capital is a big decision for a startup with growth aspirations, and often one that is out of their hands ending in disaster.

Yet, it’s a difficult choice that we recently made despite interest from international investors. 

The sentiment for capital raising in startup land has fundamentally shifted as high profile companies slash valuations and cut jobs. For us, a self-custody cryptocurrency exchange, this has come at the same time as the “crypto winter” (downturn) which has further turned sentiment against similar businesses. 

Globally, as well as locally, it is a tough time to raise money at a fair valuation.

We acknowledge that to say no to funding at this time, Elbaite is in a unique position. 

We are a startup with big aspirations, but we also operate with a different business mentality. Our focus is not on a five-year plan, but a 50-year plan, so an extra few years of foundation building at a “slow” rate isn’t seen as a problem.

What we’ve focused on in our early years is building sustainable pathways to growth and, crucially for our current situation, profitability. 

Until recently, this path was almost scorned for startups: why profit early when you can access VC funding and grow faster?  

It is important for our future to note that we aren’t committed to a path of self-funding. We have global aspirations and to achieve that we will raise money in the future to scale. 

To continue to grow through this tough climate, here are the top five ways we believe businesses can forge a path forward without reliance on raising capital.

How to move forward without relying on a capital raise

1. Key hiring for a strong team

   A nimble team appropriate to your business size is key to growth without capital. Along with getting the right team members in the door, this means being very focused on employee retention, including transparency around how the business is doing.

   Hiring the right people requires a long-term vision as well as addressing short-term needs. Looking at how a team member will be able to grow with the team over the next couple of years rather than just fitting an immediate productivity need is essential for sustainable growth.

   For us, our team is our family, and almost like a parent we are incredibly protective of them. We make sure to nurture them to the best of their abilities, and because we put in that time and effort we can outperform a team double our size. 

2. Be clear on business fundamentals and values

   Our confidence in our business structure and its model are strong — we have a unique position in the Australian market as one of the only self-custody exchanges.

   To ensure strong fundamentals (cash flow, revenue, brand etc) we scenario plan on the assumption that we won’t get funding outside of capital funding, and we make business forecasts with short, medium, long-term goals, with and without outside capital. 

   The mindset of a CEO/founder takes to business fundamentals must change in a downturn. Our focus is always on building a company for a lifetime. Spending years to build strong foundations is worth the time to develop a strong product and deep roots. 

   If you are building a business to hype and exit in five years, your strategy will be different. 

3. Know your industry

   We believe that there is still huge opportunity in cryptocurrency, and whilst others call it bear market, for us, this is the “build market”. 

   Understanding your position in your own industry is critical to maintaining business viability. If your model is flawed or the opportunity has fallen away, the best founders take the opportunity to consolidate or pivot. 

   I quit my career to make a change in this emerging industry, but am doing so by operating with conservative risk mindset. Understanding all the risks, even if those risks seem unlikely, or identifying potential risks that are there underpins our business approach.

4. Consider all your options and stay anxious

   Make sure you’ve considered all your options for funding or growth. That could be VC funding, a loan, or it could be consolidating and preserving cashflow. 

   People don’t always understand how quickly a business can enter the death spiral. The upstage is amazing, but once a tough time hits it can be a different story. You need to cut staff, your products take a hit and inevitably, morale goes down.

   As a CEO or founder, there’s a certain level of healthy anxiety you have to have. You need to be thinking of the death spiral constantly to be on the lookout for changing customer demands, market conditions and also at how your team and product are connecting to the market, and be ready to act quickly.

5. Timing is key

   Finally, when initially considering our raise, we saw a huge opportunity to expand our business. But with more funding and growth also come pitfalls. 

   What we’ve learnt is valuable. It is to take advantage of the small and nimble size of this business to put in place processes that could take it quickly from where it is now to operating with a much bigger budget.

   These foundations will be key in our global expansion when the timing is right, and for now our focus will remain on our team, our product and increasing our growth and profitability at a sustainable rate.