Investment in Progress
This crisis is the biggest challenge many companies will face in their lifespan. But especially startups threatened, as they lack financial securities for economic shocks like the present one. aaia president Hansi Hansmann has some important advice what you as Business Angels can do to help your startups and founders get through this.
Strengths and weaknesses of startups
Startups have severe disadvantages compared to established companies when it comes to crisis management. Following points could have a negative impact on the venture’s chances of survival and should be carefully monitored:
However, that definitely does not mean that startups do not stand a chance in surviving this difficult period – they have some huge advantages on their side, too:
Nevertheless, the extend of this crisis is unprecedented even for self-made entrepreneurs. They will rely on your help and experience to steer through this challenging time.
Our role as Business Angels
The most important general advice for everyone upfront: prepare for the worst. If things don’t go there, all the better, but as things look at the moment it seems like we’re headed into a severe economic crisis. Preparing for the worst means that what you need to make the resources and liquidity you have right now last as long as possible. In achieving this goal, Business Angles play a critical role. For Hansi, there are especially seven fields where Business Angels can and need to become active to support their startups.
This first point is the most important one, as it is the only one completely in the hands of you as a Business Angel. It’s the essential question you need to ask yourself: Do I invest more money or not? As raising money from third parties is almost impossible, it’s up to the existing investors to decide if the startup receives more funds in case reserves threaten to run out. As a Business Angel you may have several startups in your portfolio, which means that you need to be selective as your capital is not unlimited either. If the decision is made to invest more money, it’s beneficial if all investors contribute equally, otherwise deal negotiations with the founders will get a lot more complex.
It may actually be easier for pre-revenues startups to cope with this situation, as they cannot lose any sales they may have included in their planning. B2B startups, on the other hand, may be hit especially hard as existing customers may churn and new ones are unlikely before the end of the year. B2C business models may be impacted less severe, but should calculate with strong revenue decreases, too.
2. Creating awareness
Another way Business Angels can get involved is by making sure all members of your startups are aware about the graveness of the situation. As founders tend to be optimistic (which is usually a necessary characteristic), not everyone takes this crisis serious enough. Losses will be drastic and need to be realistically included in planning. To achieve this, it could be a good idea to let your startups calculate different scenarios, e.g. what happens if all revenues decreased by 30%, 50% or 80%? Seeing in numbers how bad the impact of such worst case scenarios could be can help illustrating the seriousness of the situation.
3. Give feedback
Connected to the previous point, Business Angels should give feedback on the forecasts and scenario calculations of their startups. Many young companies don’t have a CFO, therefore financial knowledge may be limited. It’s your task to challenge the correctness of their numbers and question assumptions made – better calculate with worst case numbers than unrealistically good ones!
4. Offer moral support
Founders don’t have an easy life – they fight permanently and are used to operating at the limit. It is now more important than ever that they don’t surpass their limit and remain their fighting spirit. In this uncertain times startups need a strong leader. Be there for your founders to keep them from losing faith – if that happens, your investment is lost as well. Offer consultation and advice, highlight alternative options and support the decisions your CEOs make – but don’t take it from them! This is what differentiates a Business Angel from a normal investor – you need to go beyond business as usual and be a figure of trust and confidence for your startups.
5. Offer advice to the whole team
While it is essential to support the founders and leaders of your startups, don’t forget the rest of the teams. Be a counselor to all of them and offer your help and advice where you can. Difficult times as the current one can lead to a lot of team issues. To make sure the team doesn’t loose it’s motivation, founders should be transparent with their planning and communicate everything openly – good news as well as bad ones. This is the only way to keep the trust of your employees. But if severe decisions need to be made, make sure that your startups keep the good people for as long as possible!
6. Use all assistance there is
Another way you can help your startups is by making them aware of all assistance and support that is offered for businesses at the moment. Organize an information exchange among your portfolio startups to find out which measures really help. Don’t be shy to take every help the government or other institutions offer – even if you don’t need them right now. That means to make use of short-time work, negotiate better terms of payment with your suppliers and reduce the wage of your founders – everything could help your startup in surviving this crisis!
7. Prepare for what comes after
At some point, this crisis will end. Taking all previously mentioned measures into account, you should try to make plans allowing your startup to survive with what cash it has right now until the end of 2021. That way, you’r eon the safe side. However, don’t forget to encourage your founders to already think about the future. This crisis bring a lot of disruptive changes with it, which is why startups should contentiously double-check if their business model is still viable, if their strategy needs any adaptation or what other changes may be coming up after this.
Last but not least – as in every challenge, there is also a chance for you in this crisis. If nothing else, it will definitely separate the wheat from the chaff. Only strong leaders and solid teams will emerge from this crisis. In that sense, it may help you in making tough decisions concerning the investments you doubted already before. But this cleansing process will not only show which founders are the strongest leaders, but also which Business Angles are really there for their companies and can offer them valuable guidance. So grow upon this challenge and give it your best!