Investment in Progress

Coronavirus – Information and advice for Business Angels

We are in an unprecedented crisis and one of the toughest times your startups will experience. Now more than ever it is critical to remain optimistic and offer advice and security to your founders. Nevertheless, changes and quick reactions will be necessary. To give you a guideline for the future, we collected essential information for Business Angels and early stage investors to help you overcome this crisis.

The impact on funding 

As the coronavirus leads to an economic standstill in travel, retail and many other sectors, there is no doubt that startup financing will be impacted significantly. CB Insights projects a decline in private market funding of 12% in Q1 2020 compared to Q1 2019. Similarly, global deal volume is projected to decline by 20%.

However, that does not mean that it is impossible to secure further funding rounds. In an interview with sifted, Evgenia Plotnikova from the VC Dawn Capital said: „We are open for business“ and that their portfolio companies just raised $200m. Nevertheless, it will be a lot harder to receive capital as investors are less enthusiastic. “There are a lot of funds out there with a lot of capital to deploy, but they have years to do it. VCs can and will slow down,” says Paul Murphy, partner at Northzone. Investors will be more careful and perform extensive due diligence on potential startups. But “the best companies will still get funded,“ which brings us to the potential winners of these challenging times.

The bright side 

If entrepreneurs are good at one thing, it’s seeing opportunities in challenges. EU-startups pointed out some specific sectors, which have the potential to blossom during this crisis.

The first ones in line are startups providing home office and remote work solutions. Video conferences and online collaboration tools are the new way of working, now that a growing number of countries introduce quarantines and travel restrictions. But also the private usage of such tools increases strongly, as people try to connect while remaining their social distance. Many startups offer extended free trials of their digital solutions to help their peers getting through this difficult times.

Another booming sector are entertainment startups. From fitness over learning or gaming apps – everything that keeps people busy and maybe even helps to make some good use of the quarantine time has seen a strong increase in users. But also the delivery sector is flourishing, as shops keep their doors closed and people order more food and groceries to their homes to support local stores.

Last but not least, it’s of course tech startups that can still fare pretty well despite the economic shutdown. There are several public programs offering fast-track funding for healthtech or biotech startups that work on COVID-19 solutions. But also fintech companies see an opportunity in the quarantine, as they often offer more far-reaching online services than traditional banks.

However, not all startups will be so lucky and can adapt to and profit from this crisis. For those suffering from the current downturn, it is crucial to take preventive measures.

Crisis Management 

In order to act appropriately and prepare your startups for the coming weeks and months, investors first need to know how strongly affected their portfolio is. Andreas Goeldi from the VC btov prepared a list that helps to evaluate the risk associated to this crisis for a specific startup. But no matter how much a business is affected, there are some measures all companies need to take. The SaaSgarage offered some good advice that can be applied to every kind of organization:

  1. Don’t try to fight the crisis with excessive marketing
  2. Focus on your key target groups
  3. Adapt a flexible pricing model
  4. Take care of your existing customers
  5. Prepare for delayed funding rounds

 

Lessons from the past 

There are many lessons from past crises that can help us get through the present one. To be one of the survivors once this is over, it is imperative to remain optimistic – but also realistic. A lot of inexperienced founders in the 2001 and 2008 crises calculated with a recovery of the economy within 8-12 months. But in reality, it took much longer. Do not hesitate to announce and execute preventive measures like short time work, head count reductions, revised release plans, or cost cuttings. It may even make sense to go into stealth mode to ensure the survival of your company until this is over.

One last tip – seek advice from those who’ve been through the past crises in 2001 and 2008. They can not only give you counsel in this tough times, but also assure you that there is an end to it and that it is possible to get through this.