Venture capital firm Y Combinator warns founders of startups: The economic environment is not looking good; be prepared for survival.

TechCrunch reporter Manish Singh revealed that well-known venture capital firm Y Combinator has issued warnings to founders of its portfolio startups, advising them on how to prepare for economic downturns.

Y Combinator's Advice: Best to Be Prepared to Survive

Y Combinator has been meeting with founders of startups this week to discuss the current market conditions. Many companies have been proactively inquiring about whether they should adjust their plans, including expenses, runway for financing, hiring, and fundraising strategies. Y Combinator states:

"For founders who quickly change their thinking, plan ahead, and ensure the survival of their companies, an economic downturn can often present a huge opportunity."

They offer the following advice:

1. No one can predict how bad the economy will become, but the situation does not look good.
2. The prudent approach is to prepare for the worst. If the current situation turns out to be as bad as the previous two economic recessions, the best preparation is to cut costs in the next 30 days and extend the financing runway. Your goal should be to achieve Default alive, meaning achieving a balance between income and expenses before running out of money.
3. If you don't have enough financing runway to sustain Default alive and your current investors or new investors are willing to give you more money even under the same terms as the previous round, you should strongly consider accepting it.
4. Regardless of your ability to raise funds, if you cannot raise funds in the next 24 months, you will be responsible for the survival of the company.
5. Understanding the poor performance of tech companies in the public markets will have a significant impact on venture capital. Venture capital will find it more challenging to raise funds, and their limited partners will expect more investment discipline. Therefore, during an economic downturn, even top venture capital funds with substantial funds will slow down their capital allocation. Smaller funds will often stop investing or cease to exist. This results in reduced competition between funds, leading to lower valuations, smaller round sizes, and fewer completed transactions. In this scenario, investors will reserve more funds to support their best-performing companies, further reducing the number of new financings. This slowdown disproportionately affects international companies, heavy asset companies, low-profit companies, hard tech companies like emerging energy, and other high-consumption and long-revenue companies. Note that the number of meetings with investors will not decrease with the overall decrease in investments. This can easily give you the impression that the funds are actively investing when, in reality, they are not.
6. For those who have founded companies in the past 5 years, keep questioning what you consider a normal fundraising environment. Your past fundraising experience is likely abnormal, and future fundraising will be even more challenging.
7. If you are post-Series A but have not achieved product-market fit, do not expect another round until you clearly reach product-market fit. If you are a participant post-Series A, the milestones we announce here may even be a bit too low.
8. If your plan is to raise funds in the next 6 to 12 months, you may be fundraising at the peak of an economic downturn. Remember, even if your company is doing well, the chances of success are very low. We recommend you revise your plan.
9. Remember, many of your competitors will not plan properly, they are still burning money, and they will only realize they messed up when they try to raise the next round. Surviving through an economic downturn can lead to a significant market share.
10. For more insights, watch the video we created: Saving Your Startup Through an Economic Downturn

Y Combinator even warns startups that they can choose not to believe these suggestions but must reevaluate their ideas every month to prevent the company from closing down.