There are strong reasons to believe that ‘tech winter’ is something that many startups will be able to weather.
Startups disrupt traditional business landscapes, so when the landscape for startups itself faces disruption, you can expect consternation and caution to abound.
As reported by startup ecosystem market intelligence platform CB Insights, 2021 was a remarkable year for global venture capital investment, with deal values doubling over the previous year as investors poured money into some of the world’s most innovative startups.
But like all periods of rapid growth, this level of investment can’t be sustained indefinitely, so this year, we have seen a contraction in both deal volumes and values.
CB Insights data also shows as of Q3 of this year, global venture funding reached US$329.2 billion, with a projection to hit US$438.9 billion by the end of 2022. This means we could see an approximate 30 per cent decline in value compared to the US$630.3 billion invested globally in 2021.
These declining numbers have caused concern among startups. However, there are strong reasons to believe that this situation, widely referred to as venture capital or ‘tech winter’, is something that many startups will be able to weather.
Weathering the tech winter
While the overall numbers are down compared to a year ago, they show that significant volumes of venture capital are still being invested – numbers that would have seemed unlikely just a few years ago.
For instance, total global funding in 2020 reached US$298.2 billion, and this year’s figures have already surpassed that amount. Furthermore, CB Insights also reports that 66 per cent of overall deals year-to-date have happened at early-stage, which should give new founders confidence that funding for fresh, innovative ideas is still available.
Running a startup in any economic climate isn’t easy, and at Amazon Web Services (AWS), we are committed to supporting startups to optimally run a business in the cloud.
For startups at the earliest stages, our AWS Activate programme offers numerous benefits to help founders get up and running quickly and efficiently, such as by providing technical support and training, business mentorship, and the option to apply for cloud computing credits. Through this support, startups can use the credits to obtain one or more of the 200+ cloud services AWS offers while they are navigating the early critical steps of proving their concept and testing product-market fit.
Since launching Activate in 2013, we have seen hundreds of thousands of startups around the world benefit, including Carsome, The Lorry, and Zagana in Southeast Asia. In just the past two years, AWS has provided more than US$2 billion in AWS Activate credits to assist early-stage startups in launching their businesses and accelerating their growth.
There’s no doubt that in times like these, investors are apt to focus on the fundamentals, with an emphasis on revenue rather than growth and an accompanying desire to see costs streamlined and more conservatively managed.
Some of the highest costs a startup takes on when starting out include people, marketing, and the cloud infrastructure the business is built on, so we encourage founders to assess if they are using cloud services in the most efficient way.
We take active steps to help startups building on AWS to save money on their cloud expenses. This includes regular reviews to ensure that our customers are using the most cost-effective pricing models and aren’t using more services than they actually need.
One of the services we offer is our Trusted Advisor online tool, which helps startup customers reduce costs, increase performance, and improve security by checking their use of AWS and making suggestions to help optimise performance. Initiatives such as these have helped our customers save up to 40 per cent on their cloud costs.
While it may seem counterintuitive, our team is actually tasked with reducing our customers’ cloud bills. An example is Indian AI-based data solutions startup iMerit Technology, whose revenue growth has nearly doubled every year for the past five years.
To ensure they’re managing their tech costs as they scale, iMerit has taken advantage of AWS’s Cloud Financial Management support to dive deep into their cloud spend analysis, uncover opportunities to run more efficiently, and right-size their service usage. Through a variety of cost optimisation exercises, the startup has reduced its cloud spending by about 20 per cent per month.
Building capabilities and community for lifetime success
Heightened motivation to save on costs does not mean that startups should forgo their ambitions for growth and learning. Upskilling is as critical now as it’s ever been, which is why we work closely with our startup customers to help them equip their teams with the most in-demand digital skills.
AWS Skill Builder, for example, offers more than 500 free courses to enable learners to build their cloud skills and knowledge, which fosters a growth-oriented culture primed to operate at the pace of innovation that startups are known for.
We also work closely with startup customers to help ensure their people and processes are optimised for success. One way we do this is by sharing knowledge of Amazon’s own culture and processes – something we call our Culture of Innovation.
We often talk about “every day being day one” at Amazon, and this gives us a unique appreciation of the challenges and opportunities that startups face and has enabled us to consistently anticipate and deliver for their needs.
An example of how Amazon’s cultural guidance has supported one of our startup customers is Vietnam’s Bizzi, an AI-powered accounts payable automation company that secured its seed funding in late 2021 and has doubled its team size year on year for almost three years running.
A “people first” startup that’s mindful of setting strong cultural foundations from the start, Bizzi have adopted a version of Amazon’s “two pizza team” methodology, which limits the number of staffers on any given project, ensuring teams remain fast and agile and empowered to bring new and innovative products and features to the market.
Our dedication to understanding the needs of customers and working backwards to fulfil them has helped AWS uncover numerous opportunities to build new revenue-generating services. This approach has helped AWS become the innovative and multifaceted organisation we are today, and it is something we are happy to share with many of our startup customers.
Stay focused on ideas and opportunities
So, despite the concern and conservatism in the ecosystem right now, we are still confident that this is a great time to launch and grow a startup. While no one has a crystal ball to see what challenges lay ahead of us, there continues to be an opportunity for entrepreneurs with great ideas to obtain funding.
AWS remains committed to supporting our startup customers to continue to innovate and solve the world’s biggest problems, and we are excited to see what big ideas come out of these unique times.