When the US entered the Covid-19 lockdown early last year, it was still unclear what impact such a major global crisis would have on startups and VCs. Almost a year later, however, we saw that the uncertainty caused by the pandemic need not completely deviate your funding goals. US startups raised an estimated $ 36.5 billion in funding in the third quarter of 2020, despite fewer deals overall, according to a recent report.
Although the funding process has looked completely different for most of 2020 than it has been for decades, deals are still being closed. By introducing new ways to show value, savvy startups can demonstrate their resilience to investors and close funding rounds, even when meeting investors in person isn’t an option.
This is how new financing processes work to your advantage
What can founders do to fund land during the pandemic? Here are three tactics I’ve seen well so far and how startups can use them to get the most out of the business process.
1. Take the (virtual) opportunity to leave a lasting impression.
While connecting with the right VC is one of the biggest hurdles to overcome, making your business shine is just as important when you don’t have the advantage of showing it off in person. Since investors can’t walk through the halls of your company to see your teams in action, observe your office culture, or have spontaneous conversations with employees, it is important to create an engaging view of your company beyond a typical presentation.
Find a way to break the barriers of Zoom and get an accurate, compelling picture of what makes you stand out. Visuals and multimedia, for example, give investors something to connect with. Think of customer and employee testimonial videos, interactive demos, or images that can help break the screen and grab attention.
When working with Orchard (a Revolution Growth portfolio company that is changing the way people buy homes) on their latest round of funding, we were incredibly impressed with the thought and proactivity they put into supporting the due diligence process have contributed. We couldn’t meet with the team in person before the pandemic and for the first time had to rely on virtual meetings and resources to assess if we were a match.
One of the tactics that stood out the most beyond Orchard’s presentation was the quality of the information in their virtual data room, which anticipated every question from an investor and ran us through due diligence seamlessly. Data rooms, especially during the pandemic, can and should serve as FAQs for what matters most to investors. The best data rooms simultaneously provide “in the weeds” details when needed, while also communicating the big picture on long-term opportunities so investors essentially get the answers to the test.
Consider adding as much time as possible to your extended team during fundraising. Orchard connected us with their full leadership bank (heads of sales, finance, operations, product, technology, legal and compliance, etc) and their local representatives in places like Austin and Atlanta able to paint the broader picture of Orchard’s business and culture . Providing access to third party employees and attorneys for VCs (at the right stage of engagement) has always played an important role in building a business-investor bond, and in particular has helped us complete our diligence in a purely remote setting.
2. Understand the impact COVID is having on your business (both what you know and what you don’t know).
Although many companies experienced an understandable “fog of war” that caused them to temporarily lose their bearings at the start of the pandemic, we are too far advanced in the crisis not to have a clear answer on how your business has changed . Although the public market has hit all-time highs recently – some companies have benefited from recent events such as elections and Christmas shopping – investors are already looking past these spikes to analyze what the business outlook will be once the dust settles .
Have clear and concise answers that relate to several key areas: How has Covid-19 affected your business? the steps your company has taken since then to manage and sustain growth; What factors or events influenced your peaks? and how to spend time, attention and money on long-term and short-term changes. While the answers need to be clear about how recent events have changed operations and strategy, I found it most helpful when entrepreneurs are humble and mature enough to clearly articulate what they don’t know about the months and years to come. Nobody has complete certainty about the permanent effects of Covid-19, but good operators and capital managers come to the fundraising process, which has been created with scenarios and risk tradeoffs identified for the known unknowns.
Beyond the business implications, VCs will also be paying attention to how CEOs and their direct leadership teams have steered the ship and how they plan to continue doing so in 2021. VCs are always keen to assess a Founder’s / CEO’s resilience and for many companies we’ve seen recently there has never been a larger adversity case study than 2020. Great care was taken to learn how executives have dealt with the various stages of managing this pandemic that first survived and hopefully now articles thrive for us in these unprecedented times. How business leaders protected employees and customers, how they maintained investor capital and company liquidity, how they interacted with board members and advisors, and what they learned from them are factors a business owner should talk to in finance interviews.
3. Use the momentary slowdown to expand your network.
Getting noticed by investors can be challenging, and without networking opportunities, cold outreach may be your only option. The good news is, with no hectic travel plans and calendars booked with face-to-face meetings, many investors these days have more time to ponder cold inbounds. So it’s a good idea to “take the shot” and reach for something. If conversations are about zoom rather than lunch, you should be reaching out to investors outside your geographic focus. Partnering with entrepreneurs outside of Silicon Valley has long been part of our investment thesis, and we’re excited to see that the pandemic has led other VCs to look outside of the tech hubs on the coast to write their next check.
Going beyond the standard intro note and delving into your connections can also help make your reach more relevant. Connect the dots between you and someone the investor already knows or trusts – whether it’s another investor who referred you to them, a lead with a CEO they are familiar with, or a partnership with one other companies in his portfolio – may improve your chances of getting an answer. However, if you don’t have these relationships, don’t let your cold streak dissuade you. Investors can also be impressed with your audacity and tenacity.
Finally, remember that the possibility of reconnecting with the same investors down the line is not ruled out even if the timing is wrong today. Don’t lose sight of your eyes when interacting with your network and know that if the opportunity does not arise now, these relationships will still be valuable in the future.
The changes brought about by the pandemic don’t have to mean putting your visions on hold for funding. When founders are open to learning different steps to a new dance, they can use the process to their advantage. While these changes may not last forever, applying the power of your network and enabling a compelling and transparent virtual due diligence process can prove fruitful for founders looking to invest in the year ahead.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
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