Startups need marketing more than ever
There's $270B of dry capital available, so how does a "non-AI" startup get some? The answer is upping its marketing fundamentals.
In 2023, the VC investment shifted dramatically toward AI companies.
According to a January 2024 Reuters report powered by Seattle-based Pitchbook, AI startups captured one of every three investment dollars in the United States. This swell in investor interest followed the spotlight-grabbing success of OpenAI's ChatGPT and the ensuing race among startups to develop AI technologies -- or to reclassify themselves as AI companies, was on.
While AI companies are drawing investments, overall VC investment dropped by 30% compared to the previous year. And even worse, VC firms raised 60% less capital, a six-year low compared to 2022. What's shocking is this nugget; it's estimated some $270 billion in idle VC capital is available to be deployed. So what's the holdup? And better yet, how can startups get some of that sweet money?
Hard Time to be a VC?
It would be silly not to do a head nod to the impact of broader market dynamics on the role they play in investing. Fear of US economic recessions and steady rise in Fed interest rates killed ZIRP-era business (see the collapse of Seattle's Convoy as a prime example).
Rising energy costs driven by multiple wars in Ukraine and Gaza, coupled with record amounts of US housing debt ($436 billion in multifamily debt-equity) and the threat of another banana republic-like Trump administration, all add up to a ton of FUD. All this is to say that venture capitalists, who typically thrive on taking risks when funding new companies, are paralyzed.
This juxtaposition of heightened interest in AI startups, risk-averse investors, and a surplus of unallocated capital raises pertinent questions for non-AI startups, i.e., those that aren't in the business of developing, creating, training, or hosting LLM-based tools. And no, using AI does not make a startup an AI startup. What opportunities and challenges await these startups in the current landscape?
For Founders, Rewards for Standing Out
For early-stage startups in 2024, the surplus of available capital presents a double-edged sword. On one hand, there is a wealth of funding opportunities. With venture capital firms theoretically eager to deploy their capital and support promising ventures, startups have a larger pool of potential investors to tap into. This increased competition among investors may also lead to more favorable terms for startups, including higher valuations and more flexible funding structures.
However, abundant capital also introduces challenges, particularly for non-AI startups. The dominance of AI is overshadowing other industries, making it more difficult for startups operating outside the AI sphere to capture investor attention. As venture capital firms allocate a significant portion of their funds towards AI initiatives, non-AI startups may face fiercer competition for a smaller share of available capital.
What's a startup to do?
Startups must prove they are worth the risk - no more than ever. A great idea and a few pedigreed founders might have been enough to kick-start early investment a few years ago, but not today.
Startups today must nail their marketing fundamentals before seeking investment. They must know who they are for and, more importantly, who they are not for. They need to refine their value prop to how they will solve a critical pain point that no one else can. And they need to dig into the dynamics of the buying cycle to understand potential barriers and objections.
They need to put marketers in the driver's seat again. It's a marketer's job to drive sustainable and repeatable growth. This growth happens when the fundamentals are in place. Here are four vital marketing fundamentals to nail in 2024.
1. Know your Why: Everyone loves a good story - and the ability to articulate, crisply, what you believe and why is vital for grabbing the attention of investors and customers alike.
2. Express Relevance and Potential: Answering the classic why now question demonstrates relevance and growth potential. In many ways, getting this right is the most challenging part of a startup's marketing. Many great ideas and companies have failed due to timing, making this element of a startup narrative just as vital as product and pricing.
3. Is It AI or Bust?: Investors may perceive non-AI startups as less innovative than their AI counterparts. Effective marketing can challenge these perceptions by showcasing the startup's innovation, market disruption potential, and competitive advantage, mitigating the perceived risk and instilling investor confidence.
4. Talk about Customer Relationships: Marketing is, at its core, about attracting and engaging customers. I've had an opportunity to work with startups who know their customers inside out. I've also worked with startups that lost touch with their audience and lost as a result. More importantly, the companies that knew their customers and understood their needs, challenges, integration pain points, etc. raised health funding rounds. There's nothing more powerful in marketing than speaking on behalf of a customer or, better yet, enabling them to speak on your behalf.
To wrap up, the investment landscape of 2023 offers insights and implications for startups seeking capital in 2024. While the dominance of AI will no doubt continue, the surplus of available capital signifies opportunities for those founders who prioritize marketing as a critical lever to help drive fundraising.