Every new business must make it through a period of limited or no revenue. Sometimes called the “danger zone,” or even more ominously, the “startup valley of death,” this interval can stretch for anywhere from a few months to several years. Thirty percent of startups fail during the first year and 50% don’t make it through five.
Most founders don’t enjoy it for its own sake. What keeps them going is the promise of significant revenue, and eventually real, maybe life-changing profit, on the other side.
“Startups that successfully cross the ‘valley of death’ have a far better chance of surviving in the long run,” says entrepreneur and investor Steve Streit, whose venture capital firm invests in early-stage companies across the retail, fintech and business services sectors.
Streit advises founders to plan carefully and take proactive measures to increase their odds of navigating this early danger zone. Here’s what he says your business should do right now.
Hire Slowly and Automate What You Can
Labor is one of the biggest expenses for any business, especially capital-light software and services startups. Put another way, it’s easier to cross the valley of death with fewer people.
Tech companies of all sizes know this to be true. Take Spotify, which recently directed its managers to “prove jobs can’t be done by AI before asking for more headcount,” according to a CNBC report.
Is this a hiring freeze by another name? Perhaps. But for startup founders watching every penny, it might be good advice too.
Guard Your Equity Carefully
It’s very difficult for a pre-revenue company to get a bank loan these days. The “easiest” pathway to funding, which really isn’t easy at all, is to find an angel investor (first) and then a venture capital group (second) to exchange cash for a stake in your company.
However, pre-revenue companies aren’t worth all that much unless they have a truly groundbreaking, thoroughly validated value proposition. So it’s best not to give away too much equity too early; you’ll get a better deal if you can hold out. In the meanwhile, bootstrap.
Apply for Grants, Incubators and Other Forms of Non-Equity, Non-Debt Support
“Free money” they are not, but grants, business incubators, and even pitch competitions can provide real money for startups early in their lives. Without letting go of any equity or taking on high-interest debt.
Many of these opportunities run through universities or state agencies, and often have “concessional” terms that are very favorable for participants. If you prefer a white-glove experience, you may need to give up some equity. For example, the Y Combinator “standard deal” is $500,000 for a 7% stake.
Align With Mission-Driven Investors
Mission-driven investors care more about solving problems than making money. They want to make money too, of course, but they’re willing to forgo the “mercenary” returns sought by venture capital and private equity firms.
If your startup aims to raise standards of living in the developing world, protect the environment, or commercialize a treatment for a serious but preventable illness, start here. You may be surprised how far you get with like-minded do-gooders.
Steady As It Goes
To cross the startup valley of death, your business needs to be disciplined, resolute and always thinking three steps ahead (or more). A reactive or reckless posture simply won’t get it done, especially not in the sort of challenging fundraising environment we find ourselves in today.
That’s right: In 2024, venture capital funding declined by 7%, marking the third straight year of contraction, according to Carta. And 2025 could be grimmer still.
Seasoned investors like Steve Streit have seen this movie before. They remember the dark days following the dotcom bust and the global financial crisis, when many worthy startups failed for lack of capital. They also remember that conditions eventually improved, boosting surviving startups’ fortunes.
There’s a lesson here: Put your early-stage company in a position to weather challenging times and it will also find itself in a much better position to arrive on the other side of the valley of death in one piece.
