It is no news that the spread of corona virus has been extremely quick, with very little time for even the larger economies prepare for. With news about shops shutting down on the high street, jobs being lost – we can see signs of global recession kicking in. It seems to now head to a stage where active govt infusion would be required to stabilise the impact of an impending recession.
As optimistic as I would like to be, I still seem to worry about what this means to the many wonderful startups out there and the impact it has on their venture. Given the number of everyday challenges a startup faces, something like this can have the impact of completely shutting down a business. Perhaps one of the biggest challenges to a startup in these situations is staying afloat.
Particularly if you a looking for fundraising around this time, it will certainly be impacted given the state where the economy is heading.
How open are investors towards high risk?
This is one probably one of the first questions that goes through a startup at this stage. General demand in the market will reduce, it will not surprise me if investors will go into a risk averse mode.
Having been involved in two different fund raises, I can appreciate the amount of time and preparation this takes to get this over the line. With the reduced demand in market, you can expect negotiations for a larger share, projections need stabilisation and the growth curve will take longer.
Of course, there are outliers to this generalisation, but vast majority of the businesses will tend to face the wrath of this pandemic.
Market projections and the impact of corona virus
If this is not already a part of your presentation, it is certainly going to be a question from your investor panel. They will be keen to understand how the pandemic influences your business and the growth curve in general.
As an investor, their primary goal will be a return on investment and the onus is always on the startup to prove how well they are insulated or insulating themselves from the global market impact. This is never easy – in an optimistic market, investors are generally aggressive and have a higher risk appetite. It naturally reduces in a slowdown which we are now headed towards.
Investors will be very keen on your cashflow for the year
Although investors are very keen on hockey curve and the final projections, IRR and EBITDA on a longer term, you can expect them to be very curious about how you plan out for this 1 year.
It all comes down to your cashflow management, cutting down the extra costs without any compromises on speed of delivery. I know it sounds like everyday in a startup life, but this will be an added demand by the investors considering how risk averse they would be at this stage. You can also to an extent expect a little bit of micromangement on your cashflow, but it all boils down to how you manage the relationship with your investors.
Some useful tips are:
- If you have a runway of about 6 months, then you’re probably ok
- Best businesses will still be funded, VC’s can become more selective though
- Perhaps consider a short term debt?
Presentations: Youtube videos – going the crowdsource model?
With the threat of this pandemic spreading – the question is how will it impact presentations and fundraising meetings already set up.
Although this sounds like a logistical challenge, it is much more than that. The online media does take away the personal impact, but I suppose the choices we have are minimal on this front.
The impact not only means presentations online, it might also mean longer decision making periods and opportunity to find out more about the entpreneur from an investor’s perspective.
A few articles do point out that this might mean investors would start looking at youtube inspired presentations or crowdsouring type videos. Although it might sound as simple as performing a presentation online, it is whole different ballgame which invites additional finesse in presentations, video making skills etc which are not always the easiest at hand for a startup.
In addition, you would also need to think about your intellectual property and leaking information to your competitors.
With all these challenges in front of a startup, some areas to look out for in moments of crisis:
- Government grants and funds
- Interest free loans
The above don’t seem like unique or innovative ideas, but they might be the very few choices available if the situation gets more grim.
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