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Fundraising in a downturn
Finance Insights

Powerful Advice for Fundraising in a Down Economy

Chloé Giraut, Head of Finance at Pigment
Chloé Giraut-Pierron Head of Finance at Pigment

2021 saw a record $643 billion invested globally — 92% growth in funding dollars over the previous year. Q2 2022, however, saw the second-highest quarterly funding decline in a decade.

Market downturns, political crises, and record inflation have led to an atmosphere of uncertainty and a slower rate of VC investment.

Regardless, there are still companies raising funds at all stages. Investors are much more cautious but willing to back founders who match their vision for the future.

I’m Chloé Giraut, Head of Finance at Pigment, and today I want to share the story of how Pigment raised our $65 million Series B extension during the economic crisis.

I’ll talk about the journey from start to end and explain how you can get there, too.

Is it a good idea to fundraise in an economic downturn?

It’s true that we’re no longer basking in the cash abundance that was 2021.

Cash preservation is the number one buzz word around finance teams now, with companies tightening budgets and even resorting to layoffs to extend their hard-earned runway.

There’s a phrase that pops up every time we’re in a bear market, “Cash is king.”

And that applies to investors as well, with the majority of them turning risk averse and investing in mature, late stage businesses. Yet, I have one question to ask you:

If not now, then when?

Don’t get me wrong. There’s a time for fundraising and it depends heavily on the objectives the company is reaching towards over the next couple years.

You really have to ask yourself, “Can I achieve my three-year plan without external funding? Can I tackle that plan fast enough? And will I be able to sustain the rate of growth my plan requires?”

At Pigment, our answer to these questions was a resounding “Yes.”

But we still decided to raise. That’s because of three factors:

  • We witnessed an exceptional relationship between our co-founders, Eléonore Crespo and Romain Niccoli, and our future investors

  • Our new investors, IVP and Meritech Capital, are SaaS experts with a deep understanding of the EPM layout

  • We were cash rich — and in the best position to negotiate a round that would help us meet even our most aspirational objectives

And so, when we were approached by investment firms interested in our business, we said yes — and raised our $65M Series B+ despite being in an economic downturn.

How to get investors to approach you with investment opportunities

Hopefully, I’ve opened your mind to be more receptive to investment opportunities. But I know what you may be thinking: it’s easy for you to say — investors approached you.

That’s true, but it didn’t just happen overnight. We made sure to nurture existing and potential investors while building a sense of trust in our product and execution of our vision.

We also had immense help, dedication, and support from our community and customers, without whom we couldn’t have built a name for ourselves so quickly.

With that in mind, here are three ways we created enough traction to catch the attention of new investors:

Customer advocacy

It’s Marketing 101: your customers should be your loudest voice in the market.

Why? A sales pitch is much easier to trust if it comes directly from the end user of the product. 

We made sure to incorporate customer advocacy from the early days of Pigment. We captured testimonial videos, customer quotes, and held events to create a mini-network of Pigment customers and enthusiasts.

Of course, the catch here is that your product truly needs to be exceptional and change the lives of its users for customers to spread the word for you. To do this, we opened up our product roadmap to suggestions from anyone with a Pigment account — employees, customers, and partners.

We always acted in the best interest of our customers and forged real relationships with them.

And the resulting customer advocacy got noticed, like when Nicole Wittlin, VP Strategic Finance at Figma said,

“The tool itself is beautiful. It's well-designed, which is something we care a lot about, and I've honestly never seen that in a financial planning tool before.”

Reputation building

Our co-founder, Eléonore Crespo, delivered a talk at SaaStr this summer on the importance of choosing your first customer.

“Most early software startups rely on ARR as the primary indicator of success. However, not every company understands the power of the trust and credibility brought by your first customers.” - Eléonore Crespo, Co-founder and Co-CEO at Pigment

Initially, we generated zero revenue but had logos including Deliveroo, ManoMano, BlaBlaCar… we kept the momentum of winning flagship logos going long after we’d started multiplying our year-on-year revenue.

Building a reputation as a company serving iconic customer logos creates a sort of halo effect, which you can then use to demonstrate the strength and potential of your product to investors.

Product-market fit

While raving customer reviews and household-brand logos on your homepage are good signs, it’s important to measure your product-market fit in other tangible ways.

We monitored our product usage with metrics including daily, weekly, and monthly active users. We measured user roles against the areas of the product they used the most, to understand which features helped our target segment best.

Each time we launched a new feature, we closely followed adoption rates and found encouraging signs that our customers were able to independently experiment and extract the best experience for their specific needs.

Investors fund companies that present monetisation opportunities backed by concrete data on how quickly the product delivers value to the customer — a metric known as Time to Value.

How an economic downturn affects investor due diligence

When the economy is so full of uncertainty, investors take less risks.

Investor due diligence, that nerve-wracking period of intense scrutiny into the guts of your business, goes smoother when you’re aware of the types of questions you need to provide answers for.

The green flags investors look for when investing in a downturn

Reputation: At the risk of repetition, I will underline that the trust created by your reputation is your most valuable asset in the eyes of investors, regardless of the state of the economy.

Our co-founders maintained a stellar reputation, both deeply experienced in their fields. Romain led Criteo, the online ad platform, to IPO. And Eléonore had gained extensive experience from her VC days and her background as a finance professional.

The strengths and skills of our co-founders helped build up the trust and confidence investors had in our capability to steer the business towards growth and profitability.

Path to profitability: Here’s where a down economy has the most obvious impact. Investors redirect their focus from growth-burn-growth, to profit.

It is your responsibility to outline a clear, attainable path to profitability. This is increasingly important as you raise more funds — at a certain point, you need to tell a story with KPIs that indicate profitability and capital efficiency.

Data: In additional to profitability and capital efficiency metrics such as the Rule of 40, or Burn Multiple, there are three KPIs I’d say investors look for the most:

  • Revenue growth, or how fast you multiply your ARR (ours grew 5x over the last six months)

  • Headcount growth (we grew our US team from 0 to 33 in a few months)

  • Cash burn, where the rule of thumb is that your growth in cash burn shouldn’t exceed your ARR growth by more than 2x

Documents: Needless to say, investors will carefully comb through your legal contracts, your HR processes, and the overall state of your business on paper.

A business planning platform like Pigment makes scenario planning and financial analysis 10x easier for Finance teams. Essentially, you’ll need to show your business plan which covers your strategy to tackle your best case, worst case, and baseline scenarios.

What to do differently when raising funds during a downturn

To recap:

  • Funds are still available but harder to win

  • Due diligence is much stricter with a focus on the path to profitability

  • You ability to pull levers, such as reputation, network connections, and customer recommendations, matters more than ever

You should absolutely try to raise funds during market downturns but change your approach slightly. Here’s how:

Maintain an optimistic attitude despite the economy

It’s so tempting to give into despair. Just open LinkedIn or your email inbox to see messages of uncertainty.

While it’s hard to blame people for being nervous in a tough economy, as a founder or CFO looking to fundraise, you have to maintain a positive mindset.

Imbibe it, believe in it — and share the upside when pitching your equity story. Your tone of voice goes a long way in convincing investors to believe in your vision.

Show you can navigate both good and bad scenarios

Hard skills such as scenario planning and expense management are required to show investors you can effectively handle a wide range of circumstances.

Can you demonstrate the ability to cut expenses and strengthen your cash position? What about when growth is lower than expected, can you map out a plan to recruit less and spend less?

You need to be able to show that you are in control even if the business underperforms versus forecast by highlighting your plans to keep cash burn low and your runway in control.

In a downturn, it is important to show a path to profitability and not just invest in hypergrowth. You switch from a cash burn mindset to optimizing your resources so you could go without raising again.

That kind of leverage where you don’t need to raise funds ironically attracts more funds your way.

One thing I would do differently if I could redo the experience

I would have increased our level of preparation.

Because we weren’t on the search for more investment, we didn’t have a few key data points that would have made the investor due diligence fly by much faster. For perspective, I’ve raised $500M in the past for Qonto, where due diligence took just 10 days thanks to the pre-prepared data points I had available.

So next time, I would have a bank of FAQs with data points and answers that make it easier and faster to address common questions investors tend to have.

You can do it, too — words of encouragement for our peers

There’s no denying that it’s hard being a founder, CFO, or anyone in a position to raise capital during market downturns. My words of encouragement are this: do it anyway.

I’ll leave you with three key takeaways:

  1. Never give up. There’s still a lot of money to invest in the economy, but it’s skewed towards stronger projects rather than less mature projects. Ample prep helps build confidence in your own venture.

  2. Make sure investors can find you. It’s hard for investors to find good projects during a downturn, so do what you can to make a splash and get noticed in a positive light.

  3. Investors are not the enemy. In reality, and especially during a downturn, investors can be your best friends as you navigate your day-to-day challenges. Give them the opportunity to invest in the future of your company.

About Pigment

Pigment is a French fintech founded in 2019 to shake up the world of enterprise performance management (EPM). Our platform offers a modern, seamless way for Finance and Revenue teams to analyze the past and present, while planning for the future.

As a new player taking on legacy software and spreadsheets, we’ve turned a lot of heads since our inception. We previously raised a total of $100 million via our Series A and B, which helped us expand our hiring, brand awareness, and reach.

With our latest $65 million Series B extension, we’re now empowered to double down on our mission. We’re grateful to have won the trust of customers such as Figma, Gong, Webhelp, and Carta, and can’t wait to bring Pigment to more Enterprise and North American Finance and Revenue leaders.

About Chloé

Chloé Giraut-Pierron is Pigment's Head of Finance. She has held financial leadership roles at Qonto and Goldman Sachs amongst her extensive experience, and currently enjoys bringing rigor, data analytics, and intellectual curiosity to Pigment's startup ecosystem.