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Key takeaways from Innovate Finance’s webinar ‘How to Fundraise in Uncertain Times’
Fundraising is challenging for any startup even under normal economic conditions. This is even more true now, with a global pandemic situation that has led to lockdowns and triggered one of the worst economic downturn since the Great Depression.
Last week, Innovate Finance held a webinar on ‘How to Fundraise in Uncertain Times,’ hosted by BrightTALK. The webinar featured Fintel Security Founder Yael Simon as the moderator, and panelists Manuel Silva Martinez, Head of Investments at Santander InnoVentures, Myles Milston, CEO of Globacap, and Yusuf Ozdalga, Partner at QED Investors.
According to Ozdalga, currently, investors are very interested in observing how founding teams are reacting to the stress of the COVID-19 situation, perhaps even more so than in the actual business model or solution.
“Investors are interested in knowing if you are innovating faster, creating new products, and being nimble. A startup’s greatest strength lies in being nimble, more creative, and faster than corporate giants, and investors care about whether you can utilize these strengths to the maximum,” Ozdalga said.
According to Silva and Milston, investors in the fintech industry are also interested in the resourcefulness of startups, and whether they are pushing for digitalization and automation.
In this time of economic uncertainty, optimism and contingency planning are of primary importance for founders. According to the panelists, there are six key points startups should remember while fundraising.
- Shift your focus
“You can tear up your hockey stick exponential growth chart in your pitch deck,” said Milston, referring to the extreme uptick commonly used by startups in graphs of revenue projections.
Instead, startups should focus on containing costs, extending their runway, getting existing investors to infuse capital where possible, and demonstrating the level of cash flow they can generate under the current circumstances to highlight how their business can be sustainable.
- Know your numbers.
According to Ozdalga, now is a good time to focus on unit economics – calculating your customer acquisition cost and the future cashflows associated with it. It is crucial to have a thorough understanding of your business’s financial health, in order to demonstrate your viability to prospective investors.
Cash is more valuable for a business now than it was 6-8 months ago. Hoarding cash is at odds with the aggressive growth model that VC-backed startups usually follow. However, investors are now more interested in viability and profit than excessive spending on growth.
Under these circumstances, having a long runway (the time before you run out of cash), is more pertinent than ever.
- Leverage Investor Relations.
“Every investor that you currently have, whether it’s your cousin who put in a tiny amount when you started or the VC who came in later on – everyone has contacts, and some of those contacts could be prospective investors in your next round. Exploiting that contact network can help you increase your runway,” said Milston.
“An investor, right now, is not only a source of cash and connections, but can be your best resource,” Silva added.
Ozdalga stressed the importance of honesty and transparency, and presenting a realistic picture of the company’s strengths and weaknesses.
“I think that sort of intellectual honesty and humility goes a long way, because nobody expects the founder to be a superhero and say, ‘We’re going to fix everything,'” he said. He also added that it’s okay to admit that you have problems and don’t have everything figured out.
- Know yourself.
In times of crises, people tend to go back to their comfort zones. For some people it’s a new product, for some it’s a spreadsheet, while for some it could mean leaning more heavily into sales and marketing, says Ozdalga.
Taking the time for introspection and thinking about whether certain actions are the right choices for the current moment is a worthwhile time investment. Be rational and seek guidance when doing things that don’t come naturally.
- Pitch and communicate virtually with your investors.
Because of global lockdowns, virtual meetings and working from home are becoming the new normal. Even after the lockdowns are lifted, a lot of businesses will probably evaluate whether a physical office space and the costs associated with it are actually required.
This means that there is going to be a shift in how founders interact with their investors as well. As people across the globe move to virtual communication, it’s an increasing challenge to communicate the core values of your business while battling distractions from family members and environmental noise.
Once the situation eventually quiets, Silva expects the quality of conversation between investors and founders to increase and become more stable compared to physical meetings.
“The quality of remote conversations has increased tremendously, and people feel they need to present themselves better to be more impressionable, and make sure other people are understanding what they are saying,” he said.
Header Image by mohamed Hassan on Pixabay