Fundraising during this COVID-19 crisis is probably one of the greatest challenges that startups and growing businesses will face.
While cutting costs can help to stabilise your business, it’s having access to capital that will ensure both short-term and long-term sustainability and growth. The good news is there are still viable opportunities out there. The not so good news is you’ll probably have to work a little bit harder to find and secure them. Read on to find out how!
Investors and VCs are human too!
Yes, it’s true. Investors and VCs are human too! Although it doesn’t always come across that way!
And in the previous few months, their priorities have changed - just as yours have.
What hasn’t changed though is that they need you just as much as you need them. In other words, fundraising is still very much on the cards.
But to adapt to the changing circumstances and best prepare yourself for this new world of fundraising within a climate of uncertainty, it’s important that you understand where investors are coming from, what they’re thinking and therefore how you can react.
What it boils down to is psychology and communication - understand the new priorities your investors now face, and communicate with them accordingly.
Funds are open, but priorities have changed
When times are good and the cash is flowing, investors will be eagle-eyed for the next unicorn or golden bet.
But when times are tough and the climate is uncertain, they’re probably going to need to look to their existing portfolios and double-down on supporting the companies they’re already invested in.
Some of these may be going out of business, others might be looking for their next big raise at a time when external investment has fallen away.
So it makes sense that VCs will be actively reviewing their portfolios to see whether or not they need to back their existing bets.
During buoyant economic times, VCs will typically spend about 30% of their time on their existing portfolio companies and the rest looking for new opportunities. At the moment, it’s likely that those priorities are flipped. Add into that equation the fact that face-to-face networking is off the cards right now, and it’s a tricky situation all round. That said, there are still opportunities if you know where and how to look for them.
Investors will look for resourceful companies that have taken measures to extend their runway
Rolling up to an investor asking for cash, when you haven’t done the due diligence of assessing your P&L and seeing where costs can be cut, isn’t going to look good.
Ask yourself some serious questions:
Have you actively reduced spending?
If so, in what areas?
Have any of these cuts prohibited your ability to build product or service your customers?
What other measures have you taken to extend your runway?
If you can paint a picture of a resourceful and proactive team who have already taken measures to cut costs that don’t jeopardise your business, then this will put you in a whole new light for investors.
Don’t be ashamed about new sources of revenue you may have investigated - have you already taken advantage of the many government schemes available for example? If so, how have you used these funds to ensure you’re maintaining good customer service?
And finally, have you pivoted? Does your business’ success now depend on a new set of criteria? Reinventing yourself quickly will again look good to investors. Just as long as you’ve done the due diligence and adapted your KPI accordingly too!
Instantly refine their forecasts
The economic climate is changing day-by-day, making it difficult to predict outcomes and accurately forecast revenues and the like.
Don’t forget investors are in the same boat here! They’ll also be refining their own analyses of their portfolio companies and assessing the risk that they’ll need to communicate to their own partners and stakeholders.
The key here is not to build too many scenarios, but rather keep it a fluid process. It’s likely you’ll also need to revisit your KPIs and see how you can put additional ones in to measure how things are evolving and how your business is adapting.
Yes, if you’ve been shying away from that Excel sheet lately, it’s time to dust off your skills and get crunching the numbers again.
Your investors will ask the hard question of how your business has or has not been affected, so it’s up to you to know the facts and figures!
Don’t be put off
Yes, these are challenging times, and yes, investors and VCs have a slightly different set of priorities right now.
But if you can put yourself in their shoes, understand where they’re coming from, and show them just how resourceful and innovative you’ve been in recent months, then you’ll still be able to land that cash.
Tenacity and resilience - it’s what all founders have in common and it’s what we’ll need in bucket loads for the weeks and months to come!