5 things to keep in mind when raising money for your startup during a global crisis
Entrepreneurs planning on raising funds in the near future will not have it easy but there is room for optimism and there are things you can do in order to improve your chances of securing future investments
Entrepreneurs planning on raising funds in the near future will not have it easy but there is room for optimism and there are things you can do in order to improve your chances of securing future investments. Let us examine the ups and downs one can expect in the period to come in terms of funding.
It is always important to understand the challenges your business is facing and, as an entrepreneur, you will have to jump a few hurdles along the road to success. As mentioned above, we are heading for a global recession, which means venture capitalists will invest more of their money in existing portfolio companies to make sure they can weather the storm.
Angel investors are normally a great option for early stage companies but may not be as relevant now, as many of them lost a lot of money due to the market’s nosedive in March. While markets do go up and down and many of the angel investors have already bounced back, they will still likely be more cautious about investing.
This does not mean, however, that there is no money. Unlike during previous financial crises, 2008 being the most recent) there is a lot of money out there right now and many more investors than investment opportunities. What entrepreneurs will have to understand is that valuations will go down and the terms for investment will become more stringent.
With the downs outlined above, the current market conditions do offer a golden opportunity for entrepreneurs to raise money if they play their cards right.
Below are five things to consider when raising money during the current (or any other) crisis.
Concentrate on the product and not the background noise. Crisis or no crisis, technological innovation is always relevant. Investors will always back great technologies and great ideas, regardless of the economic situation at the time.
Consider your target market. What the crisis has shown us is that some markets will boom—for example, video conferencing and telemedicine—while others will slow down or disappear. It is important to ask yourself whether your target market will still be relevant on the day after Covid-19.
If the answer is no, make the necessary adjustments to both your product and target market to make sure you are in it for the long run. Another way to approach this is to find the markets that had the highest demand during this period, such as health and cybersecurity and figure out how your product can serve these sectors.
Fear not, there is money out there. Early stage companies have always had a harder time raising money but, on the plus side, at least now no one is expecting you to show growth immediately which means you will be measured according to other factors that were not affected by Covid-19. Take the crisis as an opportunity to concentrate on development and recruitment.
Investors, especially when it comes to early stages, focus on your team, your technology, and your potential market, so make sure that when you approach investors you have as many of these areas covered as possible.
The human factor. There is a lot of mobility in the job market right now and this means you have the opportunity to find excellent people who are considering their next step in the wake of the crisis. However, be sure to be as picky as you ever were. There may be a pandemic out there but you are still looking for that killer team.
The good news. The time off the pandemic has given early stage startups is a gift and I suggest you use it wisely. Once the virus is under control, whether through a vaccine or the natural life cycle of the disease, you will already have a product and the market research you need to start selling it and taking over the world.
If you need even further encouragement, remember those companies who first emerged, grew, and prospered following the last big crisis of two decades ago.
One example is employer review site Glassdoor, officially launched in 2008, during the financial crisis, when many were forced to switch jobs. Enterprise communication service Yammer, acquired by Microsoft for $1.2 billion in 2012, was also launched in 2008.
Long story short, as an entrepreneur during a time of crisis, you are in for a bumpy ride and it is going to be a challenge but looking at those who made it, it is evident that even in the most difficult periods, new opportunities always arise.
Alon Arvatz is the co-founder and chief product officer of cybersecurity startup IntSights Cyber Intelligence Ltd.