The Covid-19 pandemic posed a lot of challenges for the business community. Many early-stage startups and small and medium businesses are badly affected. In such challenging times, a startup requires funding to survive and compete with the other players in the market. The most affected areas are inventory & supply chains and payroll obligations. The impact of the pandemic can be seen from the below data:
It is projected that the global economy will grow at 6% in 2021 and 4.9% in 2022. The GDP forecast for the developing economies has been marked down for 2021.
In these crisis times, Startups are blessed with the presence of venture capitalists, angel investors, corporate investors, accelerators, incubators, and angel groups.
With the increased focus on digital technology across businesses, venture capitalists, entrepreneurs and industry insiders considered investing into young and evolved startups.
The data showed that in the last six months there were more $100 million-plus funding rounds, where late-stage startups raised bigger rounds at headline-grabbing valuations.
Some of the marquee fundraising deals in the January-June period included those by edtech leader Byju’s ($1 billion), food delivery platforms Swiggy ($800 million) and Zomato ($576 million), regional language social media app ShareChat ($502 million) and fantasy gaming startup Dream11 ($400 million).
There were 31 such deals in the first half of this year, compared to 19 in the second half of 2020. In the first half of 2020, there were nine $100 million-plus deals.There were in total 382 VC deals amounting to $12.1 billion in the six months ended June 30.
In comparison, 764 deals amounting to $11.1 billion were closed for the full year ended Dec. 31, 2020. In 2019, there were 873 deals amounting to $13 billion, while 747 deals totalling $10.8 billion took place in 2018, the data showed.
In this challenging times, it is important to find answers of the key questions before approaching investors for funding/financing. The questions are discussed as under:
1. Do you have a sound business structure
A legally sound business structure will get more trust from the investor. Also, investors would want to come on board with a sound financial plan or structure. It is important to address the uncertainty in your financial plan. As a startup founder, you should address issues related to fixed & variable costs, key resources and how to balance these cost during crisis. If you showcase your way to address the crisis-related financial uncertainty, it could be easier to win the trust of the potential investor
2. Do you have alternative plans for revenue streamsÂ
In an ever-changing world, entrepreneurs desire to solve a unique problem, and that gives them happiness. However, it is not always wise to caught up in uniqueness or innovation. In order to survive in a difficult economy, it is very important to focus on solving a problem that can be sold in the market. The business model should be flexible enough to consider new products/services as per the need of consumers.
3. Investing in people
Employees are the real assets of any organization. In challenging times, if the management support and take care of employees in a positive way, they can bring the best output for the organization. This will be a win-win situation for the founders and the investors. Employees' well-being can be one of the good factors that investors can consider before they come on board.
4. Open communication
In order to attract investors in challenging times, it is important to follow an open communication strategy. The communication strategy should be open, clear, and authentic if you want the attention of investors. Open communication strategy is one of the important facets of business which investor consider while evaluating their decision of investment.
Everything you communicate should be aligned with the brand value of the business and also aligned to the product/services. Make sure you stay visible throughout the crisis by generating valuable content across every digital platform that your business has a presence.
Finally, it is important to keep in mind that investors decide on investing based on various factors. A problem-solving mindset and an open communication strategy are very important to attract investors.