Oliver Holle, Managing Partner and CEO at investment firm, Speedinvest, gives us an insight into what venture capital firms are thinking about during the coronavirus pandemic…
The global economic system is faced with a uniquely uncertain situation, which has made investors understandably reluctant to part with their money. In the immediate future, it is unlikely that many high-growth businesses will be successful in persuading investors to take part in significant funding rounds.
But this stalled investment landscape will not last forever, and it is worth founders considering how they will go about securing the venture capital they need, once restrictions are lifted and the economy comes back to life.
Here are some tips for founders who are thinking about how to secure VC funding, either now or in the near-future.
1. Don’t overplay your cards
The simple reality is that many investors are battening up the hatches for now. Many previously enticing prospects are now unpalatable. This lack of interest is not necessarily a reflection on the underlying merit of the business, but an instinctive reaction to the uncertainty of how the economy will perform in the coming months and years.
The last thing you want to do is burn your bridges with VCs. If they say they’re not looking to invest right now, they mean it. Don’t be too presumptuous or aggressive with your funding attempts – along with losing out on time, you may squander good will with VCs for future approaches.
This is not to say that there aren’t any VCs investing. However, they will be looking for specific businesses, and the standards they will set will be much higher. If you want to secure VC funding, be very selective with your efforts. Research VCs thoroughly, and make sure that they’re open to pitches and your company. Otherwise, the risk of running in circles, squandering time and ruining relationships is very high.
2. Be realistic
When the lockdown ends, what I want to see from any business that approaches me for funding is realism. Every founder should work under the assumption things aren’t immediately getting better, and should adapt their business accordingly. Don’t plan around the best case scenario – instead, you should act conservatively and prove your business has what it takes to survive the worst case.
That realism comes down to the financials. A prudent startup is one that’s done everything it can to lengthen its business runway – that is, the time it takes to go bust assuming income and expenses stay constant. If you can, try to aim for a runway of 18 or more months.
3. Focus on your core product
Lengthening your runway is likely going to mean trimming away a lot of functions that won’t be delivering a substantial return on investment right now. Thankfully, if you’re a high-growth business that’s looking for VC money, your company likely revolves around a unique product or service. Now is the time to direct as much of your resources as you can into developing that core offering.
Investing your time in product development will likely pay dividends when economic activity takes off again, since a better product almost always tends to increase your commercial viability. Focusing on your core product also signals a realistic attitude towards the crisis, which will impress VCs that are investing post-lockdown.
4. Invest in your team
Behind every great product is a great team. Identify the team members who are key drivers of your business, and invest in helping them to do their jobs better. Find ways to motivate your staff and remove barriers that may otherwise be hindering their work.
This could mean giving essential team members equity stakes, more control over the direction of your business and product, and investing in their development and the tools they need. VCs want to invest in a team that is truly passionate about what it does, and that’s one of the main things we’ll be looking at during and after the lockdown.
Your people are always your greatest asset – this is doubly true in a crisis.
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