For early-stage businesses, the global pandemic has brought about a load of new financial challenges but entrepreneurs are using their own inventiveness to respond and adapt. There is market uncertainty and lenders such as banks are obviously being more cautious. Angel and seed round capital almost entirely disappeared during the heat of COVID-19 in Australia, but we are seeing signs it is now coming back.
So how can you get in front of the right investor and raise capital during this time?
1. Not all businesses are negatively affected
"Disruption and opportunity go hand in hand” is still widely believed in the investor ecosystem. For example, Adventus – an Australian-backed global marketplace matching universities with student recruiters, has recently raised $12 milllion in seed and series-A funding as they continue to disrupt with cloud based technology for the education sector. Aussie cybersecurity startup Kasada has raised $14.4 million in Series B funding to fuel further global expansion, as COVID-19 causes a spike in online crime.
Venture Capitalists (VCs) are still investing and whilst hands aren't being shaken across the boardroom table, deals are taking place remotely. With a record number of VC funds raised in 2018 and 2019 and with a majority of these funds still in their active investment period, many VCs may continue to invest for the rest of this year and well into FY 2021. In fact, according to the Australian Financial Review the amount invested in the March quarter this year was almost as high as same time last year.
Whilst numerous Angel investors find themselves holding on to their funds rather then investing them, there are others that think it's a great time to fund startups. Many Angels are showing interest in industries such as technology, energy/green tech, consumer products, cloud-based services, real estate, life science and other sectors. Those that are holding on to their funds are focusing on their existing portfolios.
"Whilst these are deeply painful times for so many, the nature of the free market (ok, capitalism), means that astute investors are searching for businesses, business models, and for those entrepreneurs who are looking through the dark clouds of times such as these, to find those silver linings." – Paul Greenberg, Investor
2. Demonstrate adaptability
You will have to prove that your startup is going to be successful. If you can demonstrate that you have been able to adapt and continue to innovate during what has been described as the toughest economic period in modern history, you may instil more confidence in the future viability of your business to an investor.
3. Funding may be reduced
You may need to be realistic around discounting. During an economic downturn it is not uncommon for funding to be discounted by 10-25% and for valuations to be adjusted accordingly. Expect VCs and Angels to try and push down your valuation when negotiating a term sheet, perhaps even offer a smaller $ investment and may be more reluctant to lead the round. You will need to decide whether this is acceptable for your own circumstances.
4. New ways of pitching
COVID-19 has literally changed the world. As a result, there are new ways of pitching your investment. For example, FndrVestr is a new platform that allows you to use audio to pitch your startup idea to investors. In the FndrVestr platform you will have your own page where you will be able to post an audio pitch as well as as other information about your startup. Investors are then able to improve their productivity and can listen to many more pitches during the day. You will have unlimited opportunities to update your pitch, free pitch evaluation, and guaranteed investor reviews.
Most of the pitching events planned for 2020 are still going ahead in the virtual format, for example:
- Global Pitch is an online showcase event powered by DealMatrix, aimed to connect startup ecosystems from all over the world. It is a space provided for entrepreneurs to pitch their ideas online to corporates, investors, accelerators and media in order to get potential investment, partnership or exposure.
For more info click here >
- BNI Network Collective – Breakfast Event, powered by Business Network International (BNI) - This event is a good opportunity to network and connect with people from professions that you wish to exchange with. You will have an opportunity to pitch your business to guests and members.
Event Dates: Friday weekly, 6:30AM - 8:30AM
Cost: Free event
For more info click here >
Fancy powerpoint slides and pitch decks aren’t going to cut it. You will need to show real proof that you are currently operational, and that you have closed new sales in the last 3 months. You will need to show proof of existing customers renewing or returning. If you can demonstrate this then you are more likely to be successful in pitching your business.
6. Try to close the deal as soon as possible
According to experts raising money this year could still be easier than next one. If history was to repeat itself, following the GFC, VCs that were sitting on a bit of cash continued to fund businesses for 12 months from the start of the GFC, but then there was a lack of funding for about 12 months after that.
You should try to close the deal as soon as possible. Start mapping out your target investors and fundraising materials, and start organising investor intros and pitches, all whilst thinking about the new ways to pitch.
7. Look for other ways to raise capital, such as Government Grants
Receiving a Government Grant or Incentive can be a great cash boost for your business. There are a number of grants available and these have increased significantly due to COVID-19. While this may not provide you with the full capital you might be looking for it may help to overcome these challenging times.
Related: Government Grants and Incentives: Which one is right for my Business?
At Azure Group we are always happy to work with clients on getting them ready for capital raising to ensure that they are positioning themselves in the best possible light. Make sure you get in contact with us so that we can help you work through the best way to raise capital for your business.
Have you noticed our #FridayExpertTips... here's one that relates to #COVID-19: Business Planning
"In times of crisis we often focus on ourselves and our own issues. However, in order to fully understand the long and short term impacts on your business, you have to understand the impact on those around you – your team, business partners, customers, industry, niche... and adjust accordingly."
Related: Do Tech Startups need to re-evaluate and adapt due to a shift in Customer Behaviour, published August 11, 2020
This information is accurate on the day it’s published and is subject to change as the situation around Coronavirus (COVID-19) evolves. Our conclusions may not be valid if there is any change in those facts, circumstances and assumptions. Accordingly, neither Azure Group Pty Ltd nor any member or employee of Azure Group, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused.