There is a lot of talk and chatter about the state of venture investing in lieu of recent challenging times. Although no one has a crystal ball, the consensus is that most VC and early-stage investors will take a slow approach with regards to deploying their capital. Probably will be on the sideline until Q1 of 2021 is the most conservative view.
So the questions that most startups are asking us are; “when it will be a good time?” Or “when should I start raising money again?” Well, although there is no clear answer, we have made some observations about these questions from our perspective, as investors.
Your startup can be in one of the following stages:
- Thinking about raising funds– If you did not start your capital campaign yet, do not start. You should wait and see for at least 90 days or so. Most VC and early Stage investors will spend more time on the deals they already have in their deal flow and be hands-on with their current portfolio of companies helping them to survive, most investors will not take new deals at this point, you will be wasting your time and resources.
- Already started the raise – If you started already and have some traction, focus on the connection you already have. Connecting with new investors will be extremely difficult or not possible at all to generate. The response will be slower and the decision will take more time – so be patient. And they most likely will put you at the bottom of the pile for now, if they look at it all.
- Actively raising – If you are actively raising for at least 4-6 months already, continue on the side of caution. You need to know that you might be forced to adjust your “Ask”. Working with investors you are already talking to, it is your best shot.
- In Negotiation- You might be close to a deal, yet be aware it is an investor market right now. You might not get what you want, you will get what you get. Your valuation might not be holding water at this point (most likely not). If you need money you will be forced to compromise, it is just the reality of life.
As in any crisis situation there is an opportunity for investors, the venture investors are no exception. If you have heard the saying before: “ when the market is up it is good and when the market is down it is good, depending on who is holding the checkbook” According to many opinions and recent market sentiments, we were bound to enter a market downturn even before the COVID-19 crisis, the current circumstances just expedited the process.
I know at some point I am negotiating against myself as an investor, yet we are committed to tell it as it is. As a startup founder, you need to know that we, as investors, will embrace the new normal and use it to our advantage for as long as possible. Please apply the Pareto Principle here as well (80/20) rule, there is always the exception, yet the industry as a whole always operates on the 80% side.
So, throw your valuation out the window when coming to the negotiation table. Modify and adapt to stay in the game.