The IMF has dubbed it The Great Lockdown — COVID-19, while a healthcare crisis, has also caused the worst economic downturn since the Great Depression almost a century ago. In the U.S. alone, there are have been over 2.8 million confirmed cases, and since March, at least 40 million people have been left jobless as a result of the pandemic sweeping the country.
It will undoubtedly change the startup and venture capital landscapes, and to what degree is still to be determined. There are sectors that can (and do) thrive, and others that are hardest hit by the stay-at-home order. Brick-and-mortar retail, travel, leisure, and events are industries that need people through the door, and even with the boom in e-commerce, we don’t yet have a clear picture of just how much consumers have been and continue to spend.
This same logic extends to venture capital. Investors may be more conservative now, while some are choosing to stay out altogether until an end is in sight, but there are still investment opportunities out there. What you will likely find, however, is that they’ll expect more for less. Your investors may seek redemption or participating rights, higher percentages, anti-dilution provision, or representation on the board.
The pandemic has been a catalyst for founders and CEOs to be more prepared; planning and due diligence are key to not only surviving but also growing during this time. You may find that your business model needs review -- can it still be executed? Is it still profitable, in-demand, or scalable? Did you have a working contingency plan? First-time founders are going to have the biggest challenge ahead of them, and expertise is going to prove invaluable after the dust settles. Experience brings with it not only an understanding of the startup landscape over the years ahead but can also highlight the areas that you need to reevaluate today. That edge is what will put you ahead of your competition -- get a head-start on that right now, at no cost.
When looking back at past crises, both valuation and investment do decline sharply over the short-term but tend to stabilise again when public markets do. In short, you can raise funds in this pandemic but not until you’re able to answer some big questions about your product or business and its viability. Schedule a call with us now to learn more about how we can help.