The Covid-19 crisis has negatively impacted the growth of some start-ups. In addition, it slowed down the operation of venture capital firms.
Today we are seeing a “return to normal”. Thus, many start-ups are wondering how to raise funds in times of post-Covid 19 crisis ?
To raise funds in a post-Covid-19 crisis, startups must :
- Focus on metrics : start-ups with must find solutions to maintain their business so that it remains attractive to investors.
- Re-evaluate burn rate (cash consumption) upwards : as fundraising processes have been slowed down, entrepreneurs will need to plan for a higher cash-flow.
- Create contact with investors before fundraising : start-ups that have a mailing list can, with the funds’ permission, send monthly emails that will allow the funds to get acquainted with the start-up and follow its evolution before the fundraising.
- Review the investor documents and especially the pitch deck : many changes have taken place within start-ups in recent months to adapt to the new context. In addition, with the increasing demand for funding, it is important to stay up to date and have catchy investor materials.
- Contact a larger number of investors : the crisis has made some funds more cautious than others, so adopting a quantitative strategy can only maximize the chances of getting a response.
- Look for funds created specifically to invest in tomorrow’s start-ups : the crisis has prompted some venture capital firms to create seed funds designed to invest specifically in start-ups that will meet the challenges of the post-Covid 19 world.
Different players have adapted to the new context. Thus, start-ups must also adapt. Indeed, they still have to look for the necessary funds for their development.
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The year 2020 started well for French entrepreneurs. Indeed, 600 millions euros had been raised in January 2020 against 361 million in January 2019. However, the arrival of the coronavirus has slowed down the growth of the entrepreneurial ecosystem.
As these figures from Maddyness and Eldorado show, the impact of the crisis was hard felt in March 2020.
Amounts raised in France since January 2020 :
- January : €600 millions raised
- February : €355 millions raised
- March : €176 millions raised
- April : €294 millions raised
- May : EUR 556 millions raised
- June : EUR 325 millions raised
- July : EUR 347 millions raised
- August : €100 millions raised
Currently, the priority for venture capitalists is not to invest in new startups. They rather want to strengthen and secure their holdings in startups in their portfolio. However, this does not prevent them from receiving fundraising applications. All the same, they remain on the lookout for market opportunities.
How to be part of the minority of elected officials who will raise funds in times of post-Covid 19 crisis ?
Overall, the advice remains the same as it was during the pre-Covid period with a few subtleties added.
Focus on metrics
It is important to present yourself to investors with growing metrics (revenue, EBITDA…). However, your start-up was affected to a greater or lesser extent during the health crisis depending on your industry.
Thus, there are 2 cases of figure :
If the start-up has not been affected by the crisis, you have to push the growth of your metrics to the maximum in order to stand out from the crowd.
If the start-up has been directly affected by the crisis, and the metrics are in free fall, it is important to improve them first. Put all your energy and that of your team into minimizing the damage. Investors will not take the risk of investing in a startup that is losing market share or ceasing to be profitable.
For start-ups that are in the latter case, several angles can be used to boost metrics: Make a strategic pivot, develop a new line, change its prices, change its business model, reduce expenses.
Re-evaluate your burn rate upwards
In order to see how start-ups adapt to the new context, funds do not hesitate to slow down the fundraising process. Funds also take more time during the due diligence stage by meticulously auditing the different departments. Thus, venture capitalists use the time factor to avoid investment mistakes and also to revise some valuations downwards. Therefore, start-ups need to re-evaluate their cash burn rate based on the assumption that the fundraising process, which lasts between 6 and 9 months, will take longer than usual. In order to last at least 6 or 9 months, start-ups must therefore ensure that they have sufficient liquidity.
Create contact with investors before raising funds
Planning to raise funds in 3 or 6 months ? Send an email today to the investment funds to ask their permission to add them to your monthly mailing list. This way, they will be able to follow the evolution of your start-up. And if you don’t have a mailing list, consider creating one.
It’s a good way to show your agility, creativity and adaptability during this period of crisis. Indeed, investors will be able to follow the evolution of metrics and entrepreneurs will be able to show how they have responded to the current context.
Review the investor documentation and especially the pitch deck
The competition is palpable. More and more start-ups have a good business model and bring value to the market. The documents for investors remain an essential prerequisite. Therefore, it is important to take care of them as well as the pitch deck.
Contact more investors
Because of the crisis, some investors and investment funds have become cautious and take more time before making a decision. Entrepreneurs can then apply a mass strategy and contact more investors than they would have done before the crisis. It’s all about increasing the chances of getting a response.
Look for new funds created specifically to invest in the start-ups of tomorrow
Many venture capitalists see the crisis as an opportunity and have decided to invest in the start-ups of tomorrow.
For example, the French fund Partech Entrepreneur has just announced the closing of its latest seed fund (Partech Entrepreneur III) with a capital of $100 million, which aims to invest in sectors driven by the crisis: health, labor, e-commerce, finance, mobility and IT.
Following the same trend, venture capital firm C4 Ventures has just announced the launch of its second fund, C4 Ventures. It has 80 millions euros to support start-ups that meet the challenges of the post-Covid-19 world.
Pascal Cagni, founder of C4 Ventures says: “(…) If Covid-19 brings an inevitable economic slowdown, I am convinced that it will also bring innovations and technological breakthroughs. Today more than ever, we are taking the decision to raise funds and demonstrate our willingness to invest during this exceptional period”.
As we have seen before, waiting for the entrepreneurial ecosystem to return to normal is not the answer. The new normal is the post-Covid 19 world. From now on, start-ups must seek to adapt to raise funds. Indeed, the crisis will eliminate the most fragile start-ups. The crisis will spare those that have a relevant added value to offer to the post-Covid 19 world.
So, raising funds in this context is no more different than in the old context. The rules and codes remain the same even if slight subtleties have been added such as the time factor which has been lengthened, the control of metrics which will be more insistent and the chill of investors which will be more or less important depending on the investment strategies of each fund.
We are entering an era where the winning start-ups will be those that meet the needs of the post-Covid 19 world. Thus, raising funds for these start-ups will not be a big problem. On the other hand, start-ups weakened by the crisis must adapt, pivot and be resourceful. They need to remain relevant to customers and regain the sympathy of venture capitalists.
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