In times of crisis, like the Covid-19 pandemic, investors hardly ever look for new investments. However, Corporate Companies do.
Written by: Avihai Michaeli – Director of Operation – Tel Aviv Israel.
Life is all about timing. The current Covid-19 (Coronavirus) crisis is very bad for most Startups. It makes it almost impossible to gain new funding, unless of course, your Startup is already backed by a VC who will want to protect their investment, or if your Startup addresses previously unforeseen opportunities created by the current crisis, and your company actually profit from it.
Assuming that neither of the above is relevant to you, and your startup is among the 98% of Startups that are badly affected by the pandemic, you’ll have to look for a lifeline — which, judging from the trend in recent weeks, will not come from investors.
However, as unlikely as it seems, a possible solution could come from your leading competitors.
On the one hand, there is a Startup with tech and initial customers, who hoped to get funding and grow, but in the current business environment, it most likely won’t get those needed funds. On the other hand, there are some solid Corporate Companies, who are always looking for new tech and talented employees. Even before the crisis, those Corporate Companies likely merged into their company what others may have considered being “unsuccessful Startups”.
However, are mergers really a win-win situation in times of crisis?
The answer is simple: it depends on supply and demand. What choices does the Startup have? Post Covid-19, the markets will be flooded with Startups trying to survive. Most will shut down, and Corporate Companies know that.
For those Startup entrepreneurs who need funding for their Startup in order to survive, merging with a Corporate Company at the current time could be a lifeline. Such a “Tactical Exit” which will not make them rich, but it will save the company from extinction with things like “credit line”, “salaries”, and helping hands from the Corporate teams to fulfill the Startup’s mission.
Many Startup founders I have spoken to in recent weeks when the pandemic has struck hard, tell me that they will most likely need to close their companies if they don’t find funding soon.
My recommendation to them is: don’t just look for funding, look also for possible mergers.
Image by Gina Crescoli from Pixabay