Quarantine or not, many businesses are still operating and some of them, especially startups, are in the process of raising money. Even in the best of times raising money when you are an unproven, new business, is not an easy task. Not all of us are Disney who can go out and raise $6 billion in debt to weather these horrible, uncertain times. No, instead, most startups have to go to investors to raise money so that they can fund operations and simply stay alive.
While in the midst of a pandemic it may seem crude to even be talking about this but there will be an end to this pandemic and after that businesses, and startups in particular, will need to put the pieces back together and get the economy back up and running. With that in mind, I recently came across a couple of articles from Crunchbase that sheds some light on the current state of startup fundraising.
The first one, titled Ten Reasons Every Company Should Be Raising Capital Online Right Now, has, you guessed it!, ten reasons why startups should be raising money online. It’s first reason is particularly poignant for me as a small time investor: Face-to-face meetings are not required. One of the issues with raising money, and this may actually be the biggest issue facing any founders when they go out to raise money, is that it takes so much damn time. You end up meeting with each investor multiple times, maybe dozens of times, and you may (or may not) end up getting a check.
Streamlining that process is something that founders have been wanting to do for a long time now and there are ways to make that happen. First off, it’s next to impossible, at least not recommended, to meet with people in person right now. Instead, set up a video conference so that you can share your screen with potential investors and walk them through your pitch deck. You can set up those meetings as one-on-ones or do them in groups. It’s definitely a more efficient way to get the information out and if you couple it with a more moderate ask (instead of asking for $100,000 from a particular investor instead ask them to invest at least $10,000 or something like that) you can still be effective at raising money as well.
Something that the article doesn’t go into a lot of detail about is how to automate your pitch process. While the article does talk about utilizing an investment platform as a central hub for raising investment capital it doesn’t go into too much depth about what all you can automate. Here are some thoughts from me:
- Traditionally, founders will send over a pitch deck and a data file that contains all relevant information, including their term sheet and financials/projections
- Do that but also include a couple of videos of you and your team talking about your business and why it is a good investment. A short video introduction about your business and what you are doing, not dissimilar from a fast pitch/elevator pitch is a good start but also putting together a full blown walk through of your pitch deck that you can send directly to investors (this could also be posted on an investment platform).
- Can you get customers to record their feedback on video? Yeah, include that as well
- A frequently asked questions (FAQ) section that talks about: what you will be using an investment for, who your customers are, how much money you are raising, your before money valuation, and anything else you think investors are going to ask (hint: If multiple investors ask the same questions then add those to the FAQ)
- Some people use an automated meeting service where you can go to pick a time to meet with them; they do work. And, eventually, you will need to (and you should want to) meet with your investors. Right now, you’ll need to meet with them on a video conference or phone call but, eventually, you will want to meet with them in person. Good investors represent more than money; they can lead you to more investors and help connect you with other key contacts.
Another article from Crunchbase titled VCs Share Thoughts, Advice On State Of The Market During COVID Restrictions, we get a view into what venture capitalists are thinking about during these times. Now, for the most part, VCs are a group of investors that most of us will never raise money from but they do provide tremendous insights into the overall investment landscape. One such insight is that companies should be looking to raise money from investors that have already invested in them.
The thinking behind this goes something like this: People who have already invested in a company are more likely to invest in that company now because they already understand the company and they have a vested interest in the success of that business.
But what about companies who haven’t raised money yet?
From the article: “‘I think people will continue working on investments they’ve engaged with prior to the ciris (sic), but it’s just outside of people’s comfort zone to make an investment on a company they have not met in person,’ [Andy] Lerner [of IA Capital] said, noting that the possible exception to this would be for companies in the telehealth, insurance tech and fintech spaces.
“Investors are moving forward on deals they already had in the pipeline and done site visits for, met the team and done due diligence, he said, though there are adjustments being made on pricing and valuations.
“Lerner expects that over the next couple of months new deals will slow down. But, there’s a chance that if the pandemic continues for several months, people will start making deals over Zoom.”
Transitioning the conversation from VCs to Angel investors, who are primarily high net worth individuals or groups of such people, the outlook is probably a little more bleak than that. Many Angel investors are not exceptionally liquid, they have much of their wealth tied up in their own business(es) or other investments and those investments, particularly if they’re investments in real estate or other industries that have particularly hard hit from the pandemic, are tightening up and not investing nearly as much.
If you’re just starting a business at this time and haven’t made any connections with investors you can focus on developing your concept and wait out the pandemic. Reach out to customers and learn from them. What do you they really want as a solution? What solutions are they using now and how can they be improved? You can also start to make connections, it’s difficult during these times but there are a lot of online events that you can attend and try to make connections with people there. Better yet, find some potential investors and discover what kinds of companies they invest in so that you can start building your business along the lines of what they are looking for.
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