Fundraising during COVID-19 fueled pandemic era

Gone are the days’ dinners, flights, in-person pitching for founders. While we recognise there are many resources to help prepare for a successful pitching, but pitching for survival during COVID-19 pandemic has its own set of challenges that founders may not expect. The temporary new normal are making many founders and VCs adjust their pitching on video chat.

I had been investing in growth stage focused companies since 2012, but since last year I did something I’d never done before⁠— I made all of my deals entirely over Zoom. At first it was a little scary but because most of these founders I’d known them personally over the last 2 years I compensated the loss of personalisation now with the previously build relationship. It was the relationship over the couple of years that gave the confidence of trust for the deals to go through. In this market when we can’t travel, doing deals by Zoom can work.

Without crisscrossing time zones and meeting new people in person sometimes it felt like driving a car without headlights. You lose so much of the speed, the human calibration that is essential to fundraising between founders and VC. If you are in a room, you would have gotten the signals and chemistry and you can tell right away if things are working or not working.

The COVID-19 pandemic has caused our schedules to become very regimented. As most meetings on Zoom is scheduled one-on-one, many of us end up being very intentional with who we are meeting. Then we lost all the opportunity to meet new people. The serendipity is one best parts of the job for many and we surely miss it.

Despite the new challenges, founders should know that this is still a great time to fund raise and do it via Zoom meetings.

Investors have more time to see companies as they work from home with less or no travelling at all. Looking at the global report there is more capital in the system than ever before. Hence entrepreneurs should take advantage of the supply and demand perspective.

Since founders are selling a chunk of what they had built and diluting their shares, they have to ensure that they have great business cases for the additional capital they are seeking and that their company price and terms can surpass the uncertainty of times.

Pitching for survival

I had seen many startups have pitched for survival and are seeking funding from debt agencies. Majority are asking for funding to survive and few of those that I came across are from the tourism MICE and wedding industries. However only a handful benefited from the industry such as e-commerce, e-payments, logistics, rubber glove and steel.

My take for founder pitching for investment in a pandemic fuelled era is to prioritise the ROI for investors than pitching for their survival.

Investors will want to know how long is their runway, what is the plan to raise capital – when, how much and at what valuation. If the fundraising is not successful, what is the mitigation plan? What is the cost cutting measures? What are the plans to pivot if startup is asking for survival funds?

Investors will expect to field questions on the start-up financial outlook, cash flow management, and how the funds raised will be utilised.

If the pandemic prolonged, are the business sustainable and scalable? Will the fundamentals of the business remain unchanged or affected by uncontrolled scenarios?

However it is quite difficult for VCs to make any exceptions because most of them operate based on mandates given by LPs and GPs. Unless founders have a super fantastic business plan and is able to show justifications such as expansion, market strategy, financial forecast, scaling potential and profitability post pandemic then an exception may happen.

If you fail to get funded for survival, what can you do?

Pivot or hibernate. While many prefer pivoting. Companies may find a temporary revenue stream to sustain breakeven after cost cutting measures such Grab and Air Asia venturing into food delivery. If that doesn’t work out then hibernate the company so that it may survive in a dormant mode and make a comeback once the situation allows.

A company that I personally invest in and guide do pre-paid membership packages for their customers, reinvent new services with large upfront payment by focusing on affluent clienteles, and renegotiate payment period with creditors.

Remaining positive is something that founders must do. After a bad fall into the pit, the only way is to get up again and how high the company can soar depends on the founders. Market will eventually recover given time.

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