Back in April, in the eye of the pandemic storm, we asked European VCs and angel investors How is coronavirus impacting the funding landscape for startups?. They told us that they were forecasting a slowing down of deals for the next few months, would be investing in their existing portfolios, and focusing on impact ventures and post-COVID trends.
Around 3 months later, we thought it was time to reassess the funding landscape. From the influx of startup news that we receive, it seems that VCs are ramping up their activity again and closing (albeit smaller) rounds. However, for the founders that had put their fundraising plans on hold to battle the oncoming storm, and are now in a position to approach VCs, there are a number of questions still flying around: How is it best to approach VCs at this time? Will the process be slower? Will valuations be lower? How should we adapt our pitch?
In the following article you’ll find some answers to these questions from a range of European VCs, including tips on what they’re looking for in this pandemic environment.
Consider bridge rounds
With so much uncertainty in the air, a bridging round or lower valuation might be more appropriate for your startup. Benefits of bridging rounds include essentially solidifying your short-term position, until a longer-term round is relevant. In this case, it might be worth re-thinking how much you’re asking for before you step in the room.
Lavanya Bhamidipati, Investment Associate at InHealth Ventures:“”Think carefully about how much you truly need to raise and your valuation. Will your revenues and growth take a hit in the short term? If so, exploring a bridging round might be preferable to a fully-fledged raise right now.”
Michael Niddam, Managing Partner at Kamet Ventures: “Ensure you have adjusted your expectations when it comes to valuation and terms – now is not the time to be overambitious or inflexible and price yourself out of a deal. You might have to compromise on some of your preferences to get a deal over the line. If it’s not your first round, don’t be afraid to accept investment that lowers your valuation. Many established companies have gone through this in recent months – it’s not necessarily a bad thing, and in the long run the working capital is more important than maintaining a valuation that can go back up again when the market is healthier.”
Make your remote contact eye-catching
Establishing a relationship remotely comes with its positives and negatives. We heard from VCs that although they were more open to startups reaching out to them online in a ‘remote-first world’, they also foresee certain challenges when building long-term partnerships digitally. Tips from VCs include the old classic of making your first online contact through an introduction if possible, as well as making your pitch submission as eye-catching as possible to combat screen fatigue.
Antoine Poirson, Partner at Antler: “Investors are more accessible than ever: cold reach outs, introduction through their network, website applications etc. are very relevant ways to access them in a remote-first world.”
Bob Thomas, an investor at Oxx: “This is a challenge for both founders and VCs: how do you build that long-term partnership remotely? It’s possible, but it requires some dedicated effort. A qualified introduction can be helpful – starting that conversation with some trust “in the bank”, so to speak.”
Reece Chowdry, CEO of RLC Ventures: “Given screen-time fatigue, finding ways to make your pitch stand will really help your chances at securing a first meeting. Tools such as Loom or the new mmhmm app (if you can get on the waitlist) are great ways to bring your pitch to life whilst in-person meetings are still off the cards. We backed an oversubscribed seed-round during COVID where the founders submitted a video pitch deck – it really caught our attention.”
Expect longer timelines
With face to face meetings on hold, and some VCs putting out ‘fires’ in their own portfolios, be sure to factor a longer timeline into your planning. Keep in mind that when you do finally get to that video conference, your pitch needs to be even more snappy to maintain digital attention.
Robert Walsh, Managing Partner at QVentures: “It’s critical to follow the investor’s process and not get discouraged if the response takes longer than expected as there are still, although fewer, emergencies occurring in portfolio companies.”
Lavanya Bhamidipati, Investment Associate at InHealth Ventures:“If you’re looking to raise investment, be prepared for longer timelines. With intro meetings and pitches taking place over video call, it’s harder for VCs to build relationships with entrepreneurs and additional due diligence needs to take place in lieu of meeting a team in person. Factor this into your planning. When pitching, keep it short, sharp and include no more than 3 people. It’s key that the CEO leads, with other team members pitching in when required.”
Don’t ignore the pandemic in your pitch
As we discussed previously, when it comes to presenting your business, it’s essential to show how you pivoted and adapted, and intend to maintain light on your feet when it comes to future scenarios.
Chris Smith, Partner at Playfair Capital: “The additional work for the founders is in convincing us that they can execute their plan in such uncertain times. This tends to play out in the financial model, where we expect to see extensive flexibility baked in, and the GTM strategy, which should have multiple strands that can be relied upon depending on market conditions.”
Anya Navidski, Founding Partner of Voulez Capital: “Covid19 had a major disruptive influence on the startup ecosystem but it has also provided investors with a unique due diligence tool. Demonstrate how you showed leadership and strength during the crisis, how you pivoted, embraced changes, responded decisively and effectively. As in any recession, focus on revenue proof points and make sure you raise enough runway for 18-24 months.”
Jeff Lynn, co-founder and Executive Chairman of Seedrs: “The most important thing is to ensure that you have adjusted the focus of your business as needed to address changes in market demands. Investors are going to want to understand how you can provide your product or service to consumers who are likely to have different needs than before the pandemic, and how well you react to their behavioural changes.”
Simon King, Partner at Octopus Ventures: “Don’t ignore the impact that Covid-19 has had on your business. It’s much better to acknowledge it early on in the pitch and use it as an opportunity to show how you have reacted, as that’s what really sets apart the best founding teams.”
Where to next?
For more advice on how to prepare your pitch deck, take a look at our recent article ‘8 top tips for a successful pitch deck (despite coronavirus)’, where we go through the key questions that investors, clients and press will want to know from you and your team.