The pandemic is not going to disappear soon. We will live with it for the next few years and no one knows when it is going to end even though it be brought under control one day. What are the keys to successfully navigating the current funding context?
Timing
Fundraising can be a full-time job for entrepreneur and CEO, and diligence often requires involvement from other senior team members. For a startup that is focused on executing, it is important to focus your time on serious investors.
Entrepreneur like you need to access honestly if the timing is right for your company to raise capital. In the yesterday, any company may be able to raise seed capital based on an idea using a pitch deck but now investors require more than this. Entrepreneurs need to have more clarity on the products, distribution and brand on this economic climate before talking to investors.
Entrepreneur needs to think how to beg, borrow and steal their way to a minimum viable product and a minimum viable brand to eliminate doubtfulness for investors. They need to recognise that there is a lot of external uncertainty they can’t control and they should control those they can to give comfort to the investors.
Keeping an eye on the industry you are in will definitely help. If you are disrupting your competitor by offering something more than them, understand what you are trying to disrupt. I once came across someone pitching to me that they had a platform and trying to disrupt Shopee and I told them this is ain’t going to happen because using FMCG product strategy as customer acquisition is not the way of disrupting a giant player. It may be a good time delay the raise, or pivoting a new angle to serve the industry you are in at this moment.
I always believed in relationship building with investors before any raise is done by entrepreneurs. For those who had invested their time and energy the last few years the warm connections will still be there because it has been build up. It is easy to say focus on the existing investors that you already knew but how about those whom you doesn’t know? Eliminate from your list any firms that appear nervous in this environment. They will all say they are open for business but asking how many active diligences they are in may reveal something different.
Good to note also if the potential investor is building up its existing portfolio or looking for new ones and if they have ever made an investment without meeting in person. Based on these responses, you can fairly gauge whom you can choose to press ahead. Then you can be strategic and efficient with your timing.
The Webinar Pitch
I lost count how many Zoom calls I made. The coffee meeting with entrepreneur and investor in the yesteryears seem to be a distant. Now as we shifted from physical meeting to webinar meeting many face challenges to make investment decisions over such webinar calls. That’s the current reality whether we like it or not. Investor are split when making investment over zoom. However, deals are made quite fairly. While many of us don’t think this is an ideal situation, how can entrepreneur make the best out of such situation?
Invest in online networking platform to reach out to as many people as possible. Linkedin premium will be a good choice to connect with affluent people that might just wider your net cast to know more potential new investors. Get to know successful entrepreneur through your networks, because when they smell a good deal they will invest in it. It wouldn’t do any harm to you, the most you just get a no from them.
Invest in high quality webinar account with good video and audio to show your professionalism. Do your call in a private and quiet place not with your kids running around in the living hall as it will disrupt yourself and the people in your call.
Change how you pitch in webinar because talking over 30 minutes with slides will create boredom. Investor will be turn off. Instead send the deck for investors to review and in webinar meeting focus on conversations rather than presentation. My experience tells me having a discussion with investors in webinar will be more productive two-ways than one-way story telling. Investors wants to get to know you more because they can’t sit in front of u. I am one of those who like to sit in front of entrepreneur because I like to read their body language to tell what they said is true or false.
It may seem trivial, but with travel on pause, video calls make it easier to schedule meetings and to have more meetings, which moves things along faster. Before Covid-19, travel logistics often determined the pace of the overall process and timing of meetings. Right now, that issue doesn’t exist. You will discover how fast investor can turn your presentation into interest and move into term sheet.
Due Diligence
Investors spend a lot of their time and money doing due diligence on a company before a deal is completed. Entrepreneurs do the same thing too. How do entrepreneur do that during COVID-19 pandemic?
Many of times entrepreneurs don’t have the opportunity to confirm their in-person business dynamics aligning with their own online conversation. The showcase of interpersonal dynamics are essential for making a relationship work. They have to connect in person so that it eventually work out. Once the contract is put on paper you are in the relationship with the person and best it work out.
Building relationships with investor over webinar is not going to be easy. Talk to investors and you will find that they would have things to disagreed with you. And it is okay for them to disagree with you then you know where to improve. Don’t get frustrated to soon. You should know where to correct it if needed and and learn how to handled it. You should always do a last reference calls by asking – is there anything else that you should asked? That question usually stimulates more great questions and answers.
Entrepreneurs should also offer investors references when building a relationship to build trust. Imagine it is so hard to sell when you can’t meet someone in person and trying to sell over a static webinar is not easy. In the new normal it is good to acknowledge that that none have met in person and it will be good for references to put out a word for you especially your angel investors or your customers. Investor will want to know how was it like to work with you as a CEO. It will be rather more efficient to index yourself with personal references when investors can due d you more in person.
Extension of runway
As I wrote earlier, we doesn’t know when this uncertainty will stop. And there is no guarantee it will turn around the corner as fast we think it could. So with so much uncertainty there is no guarantee that entrepreneur can raise at the normal pace. Hence the smarter way to do is to build a financial model that can sustain them between round of funding. This will give them more time.
Regardless the shape of recovery cash is king and manage it wisely before entrepreneur can complete a round. Even if it slows the growth of your company, you need to extend the runway. This will help you to buy more time to look for investors who buys in your vision. Extend it as long as you can do it or else your business stop, even though it hurts in the short term. Preservation is the best testimony story for start-up. Mailchimp was launched during the 2001 recession. Uber, Airbnb and Slack launched during the 2008 recession.
Pivoting the COVID-19
Before the pandemic your business was designed to excel in the world everyone imagine. Suddenly the rules has been rewritten and everything you plan for turn upside down. In order to survive to the new normal every business including yours have to make a COVID-19 pivot.
Get ahead and think ahead of time what investors will ask you on how your business pivot around the pandemic. Develop an internal thesis, test it and restate the thesis. Have a clear metrics to measure how effective is your pivoting with the thesis. Communicate it with your investor and potential one. Narrate to them why you developed the thesis, how you work on it and conclude how it work and doesn’t work, and how you pivot around it to make it work. Have at least three more thesis in the basket to test to make it work.
I had the chance to work with a wellness company during the pandemic and we pivoted a lot of techniques to keep the company staying afloat during the pandemic. We started with offering blood test to DNA test to offering supplement and then stem cell therapy to the customers at every level we explain to the customers why they need these services especially during the pandemic. We also took a focus on costs and cash management, and it was important because investors wants to see how we respond to such moment to aid the company for future fund raising efforts. Importantly investors want to see the effort from the entrepreneur themselves, how they adapt and adjusts to the shock. You as an entrepreneur have to create an additional deck focusing on how your staretgy and operations will evolve in response to COVID-19 and the economic downturn.
Half of your pitch deck prepared prior to COVID-19 will become obsolete hence you have to shift to a monthly dashboard. The dashboard can give investors a fair view on your immediate and mid-term response during the pandemic. My take 50% should be focusing on how your business responds to COVID-19 disruption and 50% on your business long-term vision. Then pivot again in six months because things will change. However, what doesn’t change is your core business and your business’ fundamental. Investor may want to see your monthly sales to give them an assurance you are on track instead of last year sales or last quarter sales. That is the reality we are living today, the yesteryears data don’t mean anything anymore.
The pandemic will end at some point. Investors will also want to know how your company will be successful in a post-pandemic world. But don’t add too much weight on it because we will not know it is going to be permanent or temporal.
Communication
The more crisis you face as an entrepreneur the more you need to communicate. Even though it’s bad news. So what? The world will not fall and end like that. In crisis communicating your plan to address the bad news is the most important honest every communication. As entrepreneur and CEO you take the bull by the horns and address the most pertinent issues.
Investors wants honesty and surety. In those pre-pandemic years’ entrepreneurs are trained to say everything is great and the moon and the sky is falling for them. But once they say things aren’t working for them they fear they will lose credibility. The best things to do is to admit things are working because of the crisis and the honesty will go a long way in saving grace for both parties.
My advice to those who are pursuing fund raising is to not over communicate. You are speaking to your investors at a pace that would not have been the case prior to the pandemic.
Opportunity in Crisis
Consumer behaviour is shifting during the pandemic and brand loyalty is also shifting. Online shopping is the new norm and consumer wants things that are more affordable and they couldn’t care less whether it last longer or what.
If a company stay on the way it has done business in the yesteryears before the pandemic chances are they are now belonging to the dinosaur group. There will be a lot of great entrepreneurs who will come out of this with new innovative ideas and remoulding new models. This crisis will result in a re-examination of old systems. Changes will accelerate in a much faster pace than anyone could imagine.
Can anyone imagine Tesla demand for electric car surge during the pandemic?
Make a strong business case.
Is your business resilient in today changing world? Your business need to demonstrate a solution that is a must-have, rather than it is nice to have. I couldn’t imagine Proton is doing well after all those decades of losing money. For once last month April 2021, Proton top the chart against Perodua for the most sellable local car. Talk about change.
If you can understand the situation, prioritizing, reframing the approach and making adjustment tactically then you can win the war of perception with your investors.
Be sensitive to what your investors want, not what you want. Even Grab have to take the SPAC route.
Deliver the next 12 months on fact based perspective
Build a company that you can sell so that you investor can cash out. Show to them you can have a stable and profitable customer base during and post-pandemic. You have to demonstrate that you will be able to succeed in the short term to long term.
The investment climate has change these past few months. New challenges arises, and not all of them are smooth. However, understanding and correcting the ways we used to operate and grabbing the new opportunity that are laid before us is important to show the resilience to investors. The key is to show to the investor your company is a must-have in the current market and you can be successful in securing new round of funding.
Before this people say why need grocery delivery? I can just walk into a grocer shop but now it’s better to stay indoors and contactless in a crowd.