We always ask our tech startup tenants what they would do if funding dried up. When tenants are burning cash, they must rely on a new infusion of cash to sustain operations before an exit or attempt to achieve a positive cash flow. To date, this has been a hypothetical question. For the past few years, firms with clever technologies or growing users and revenues could easily raise capital at enhanced valuations. Firms focused on growth and market share. Most firms answered our question by saying that they could be cash flow positive if they needed to. To accomplish this — the firms would lower their research and development as well as their marketing and sales expenses. Even if the firm could lower these expenses, their business probably could not sustain such reductions very long without severely hurting their future.
Suddenly, capital providers are reevaluating their valuations and stiffening their capital requirements. Funding has not dried up but has become more difficult to obtain. Now our question will be more relevant and topical and will be met with less disdain.