What Founder’s Need to Know as They Raise Capital in Month 10 of the Pandemic
As we enter month 10 of life in the COVID-19 environment, more and more companies are faced with the need to raise capital during a pandemic. While early on we saw early-stage founders choose to delay for more “favorable times,” the clock has run out on that waiting game. The good news is that the world has kept moving. Investors are still raising capital, funders are still writing checks.
I recently participated in a panel hosted by DCA Live, an organization that connects innovative business leaders in the DC area, and we went deep on this very topic. Investors from SJF Partners, Osage Venture Partners, Bridge Bank, Frontier Growth, and other members of the DMV startup ecosystem discussed the state of play for raising money, writing term sheets, and sourcing deals.
Here are my three big takeaways from this discussion — founders who keep them in mind will set themselves up for success in fundraising by having realistic expectations for timeline, valuation, and investment mindset during this time.
1. Investors are still doing deals.
There was a pause of investing at the very beginning of COVID because VCs were focused on working with and protecting their current portfolio companies. After stimulus checks and PPP, and with public markets doing well, investors are actively looking for new opportunities. If you’ve been hesitating to reach out and begin a raise, now is the time to do it.
2. Decision time will take longer as processes are in flux.
Pre-pandemic investors insisted on meeting with entrepreneurs in person before making an investment decision. “Getting to know you” was dependent on “seeing you” in person. Virus or no virus, business hasn’t stopped, and VCs just like everyone else have had to adapt.
Unfortunately, it’s not easy to pick up on body language or build trust virtually, so investment processes require more meetings and take longer to close. VCs are more reliant on customer references and deeper research. And the process just takes longer. Be flexible and open to that, trying to pressure investors into a deadline or a “fast close” is not going to win you any points on this long-term relationship.
3. Valuations are either the same for the hottest deals or significantly discounted.
There seems to be a dichotomy between deals that are very hot, where valuations that are still frothy, and deals that aren’t hot, where a “COVID discount” is asked for or expected. Some industries, like future or work with remote work tools or healthtech, think telemedicine solutions, are getting a surge of investment dollars and inflated valuations because of the urgency of now. Others, like property tech or retail, will take a big hit.
In this same line, trying to shift the positioning of your product to relate to the pandemic or throwing a slide in the deck to connect to COVID, is not helpful. It shows a lack of focus, better to just address COVID’s impact on your company head-on, rather than try to try and signal some benevolent pivot.
Big thanks for hosting Doug Anderson, DCA Live, and to everyone that participated in this panel: Sean Dowling, Osage Venture Partners; Cody Nystrom, SJF Ventures; Alan Langelli, Aronson; Matt Klinger, Bridge Bank; and Matt VanderGoot, DLA Piper. It was a great discussion and happy to have been a part.
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