Soft equity markets have prompted companies to reassess their operational strategies. With diminished access to capital, many founders have turned to raising debt facilities to support their balance sheets. Sonya Iovieno Head of Venture and Growth Banking, HSBC Innovation Banking UK Firms have honed their focus on operational e昀케ciencies and driving towards pro昀椀tability. The imperative to do more with less has spurred boards to slim their top-line spend, reduce headcount where it is less impactful to RoI and become more innovative around workforce optimsation. At the same time, growth is still important and investing in the levers that deliv- er e昀케cient growth, remains key to driving enterprise value. Put simply, each additional dollar of spend should account for incremental RoI. In essence, the challenging equity landscape has compelled innovation companies to streamline, innovate and strategically reposition themselves to thrive in an evolving 昀椀nancial environment. Smaller rounds extending runway A further impact of changing fundraising conditions is evident in the number of companies raising larger subsequent funding rounds. During the height of market in terms of capital availability in 2021, the share of rounds raised that were larger than prior rounds (up rounds) hit record highs. For example, in the 昀椀rst half of 2022, before conditions in Europe shifted, more than 80% of all rounds raised by companies were at least 10% higher than the round of investment immediately-prior. By Q1 2023, this had fallen to just 65% of rounds, while in that same quarterly period, 27% of all rounds raised were actually at least 10% smaller than the preceding round. This is not surprising given the change in capital availability and the cost of capital, which has meant that founders and companies have had to become increasingly open to raising smaller rounds - sometimes at low- er valuations - even if those rounds don’t provide the same cushion in terms of cash balance and runway that became commonplace during 2021 and 2022, when external capital was more readily available. By Q3 2023, the share of larger rounds was up at 77% again, but it is still too early to tell if this reversal is here to stay. 85 | Companies