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April 30th, 2020

ELEVATE PERSPECTIVE

Fundraising in 2020

By Kyle Keeney, Ph.D., Entrepreneur-in-Residence, Southern Indiana

One could be excused from acknowledging or taking COVID-19 into account in your pitch deck prior to the economic shutdown. But, as we forecast through the end of 2020, the landscape doesn’t look to be heading back to the “old normal.” Rather, it seems more likely that there will be the emergence of (yet to be clearly defined) “new normal.” With that in mind, it is both prudent and necessary for companies looking to raise early-stage capital in 2020 to address both the uncertain “new normal”, as well as the overall macro-business disruptions and how they impact your company. Below we hit on a few key aspects of fundraising that you should keep in mind when moving forward.

Revisiting, re-envisioning & revising the fundamentals
  1. Customer (re)discovery. Start here. Reengage with your customers. Ask and listen. Have your actual customers changed? Have your customers’ needs and buying habits changed? How are you addressing this? What is your plan for addressing this in the future? The sooner you can figure out the answers to those questions, the better.
  2. Team skills. Does your team have the skills to handle the current challenges? How about your Board?  Where are you seeking guidance?  Is it someone over the age of 35 or someone who has been through a “recession”? Now is the time to think through your talent strategy and make sure it aligns with any new goals you have.
  3. Market. What about your supply chain, has it been disrupted? What is the current workaround? Will there be a long-term shift? How has the larger market changed and how have you adapted?  Where is the competition at this point?
  4. Product. Is your current offering still relevant? Is there a new, different iteration that is needed? Pricing changes? COVID-19 has affected a lot of businesses and products; make sure your offering stands to survive.
  5. The financial model. This may be the single most important asset that you can share with a potential investor. It is a litmus test for the maturity/wisdom of your startup. This is MUCH more than a spreadsheet and should be detailed and robust enough to show how your world has changed and how/where the impacts are. Visit our knowledge portal for some templates.
  6. The ask. How has your use of funds changed? There is a lot of discussion of “right-sizing”. Be prepared to defend both the ask and the use of funds. Now, investors are much more focused on supporting their current portfolio and mitigating/addressing those risks. Give them a reason to want to invest in you.
  7. Co-investment. You must show that you have the interest, traction and can close the round in a timely fashion. There is a chicken and egg dilemma here, but you need to be able to soft circle interest for at least 30% of the round BEFORE you go for the serious ask.

 Some additional things to keep in mind as you work through your fundraising needs:

There is no Place Like Home…  The Regional Market

For most early-stage companies, physical location drives fundraising. And the challenges of accomplishing this fundraising in the Midwest are well documented; take our 2019 YE Venture Report or Endeavor’s Middle America’s Competitive Advantages In Entrepreneurship report. It takes an extensive network even during the best of times.

Remember Your Audience

You are asking people for money. They want to know the terms, the risk, the use-of-funds, and when they could potentially get a return on this investment. And while the story of the evolution of your company to date may seem important to you, it is not at the forefront of what the investor is thinking about. The important bits will be covered in due diligence. The rest is outside the box.

New Risks, New Opportunities

From the VC perspective, the current climate presents innumerable new risks to making new investments. This is coupled with limitations of due diligence at-a-distance. However, in certain spaces, there are new/emerging opportunities (mostly related to COVID research, treatment, or “future of work”).

Forging Ahead

You may not be able to control the economic landscape, but you can control your company’s plan and development. Both current and potential investors will want to see that your company not only has a strong foundation of the fundamentals mentioned above, but also the tenacity to get through this or any additional tough time that might arise.

Click here for more articles and resources on COVID-19 and managing your startup.

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