We are certainly living in interesting and challenging times. The wider downturn has made it harder for software entrepreneurs to raise new rounds of funds, as some investors put additional focus on their existing portfolio rather than new deals.
However, for strong companies this situation also raises opportunities to further strengthen their leadership positions, for instance via acquisitions. Frog is both continuing to support its portfolio companies in this strategy – two of which have already made acquisitions in recent months – and looking to support potential new investments in this strategy.
With the Russian invasion of the Ukraine, the established geopolitical order of the past three decades has been challenged. And perhaps closer still to the daily reality of most Western Europeans are the energy and cost of living crises.
With this background I was surprised that at a recent event in Hamburg that I attended only 10% of the present entrepreneurs and business leaders acknowledged that they were seeing signs of a recession in their respective businesses.
In our diversified portfolio of B2B and B2C businesses across Europe, we can see some early signals of a slowdown. While the majority of B2B businesses might not experience decelerating sales or rising churn yet, the mood music and direction of travel is undeniable nonetheless.
Be prepared
If we now add sharp rises in interest rates and the already observable deterioration to the fundraising environment into the mix, it should be clear that the signs of the time point towards prudent planning.
The group in Hamburg did agree that we are living in uncertain times. And for businesses the order of the day is to be prepared. In our recent podcast I discussed with Frog Senior Partner Mike Reid what companies can do to prepare themselves to weather the storm and take advantage of opportunities that may arise.
As an active investor, we have been assisting our portfolio companies over the summer in the development of potential scenarios with the support of our operating partners, sparring with the various leadership teams as desired and required.
Once you have completed this diligent planning for potential scenarios for your company over the coming quarters and taken the measures to ensure that you are not running out of cash, you can start narrowing down these potential scenarios your company might face in the coming quarters.
And good things will happen then: for instance you might see decreasing costs in your customer acquisition as competitors can no longer invest heavily or business customers look for software based efficiency solutions.
Another typical development in an economic slowdown is that attractive acquisition opportunities come along. In fact, the first one of our portfolio companies has already completed a small add-on acquisition. We at Frog are actively supporting and looking for opportunities to finance growth by acquisitions.
And thus, for those of you who plan prudently, opportunities arise to elevate your company to a long-term winner.
