Look beyond equityWhen funding is more scarce, you obviously need to maximise your options. Many VCs will be either drawing back or shoring up their previous investments. Even if you can raise from a VC, it might not be on the best terms. Crowd and angel investors might fill some of the gaps, but in general, we expect demand for equity to decrease. That’s not necessarily a bad thing. Equity raises tend to grab the headlines – at least in the startup bubble – and equity is a good solution if you’re pre-revenue or racking up losses for growth. But for many businesses, there are a lot of better options. After all, if you expect your business to succeed in the long-term, equity is one of the most expensive ways to raise capital.
So where else to look?Regular bank lending will likely be difficult right now for all but the most qualified borrowers. One of the government support packages could be your best bet for a traditional loan or a grant. Of course, that funding might still come on a bureaucratic timescale. Then there are the more innovative forms of financing. For instance, at Just Capital, we specialise in revenue finance, a type of funding you pay back from future sales. Repayments scale up and down with sales and there’s no interest, so that works well if you’re revenue positive and want more flexible funding.
Be more transparent, not lessIn a crisis, the natural instinct is to protect your business as much as possible by projecting ironclad certainty. In fact, when honesty and real confidence are in short supply, being frank with your investors and potential investors is very powerful. Sure, be positive, but also be clear on the challenges. In this context, claiming there’s nothing to worry about will be more naive. Providing regular updates to your current investors is good in itself and creates great collateral to show your new ones how your business has executed. If you can show how you’re navigating the crisis and cutting costs, that’s ideal.
Plan for growthNo investor wants to give you their money solely to avoid you going bust. They want to know you’ll be creating real value. That’s difficult in the circumstances, but there are opportunities. For instance:
- Hiring tech talent will be cheaper than any time in the last five years
- Turbulence is accelerating pre-existing trends like e-commerce, online services and SaaS
- Incumbents may contract, providing space for nimbler, more efficient competitors
- Advertising costs are declining
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