Founders find raising seed capital challenging in the best of times. Throw in the chaos and uncertainty of 2020 and it’s understandable that founders have felt unsure about their raising prospects. So, how have early stage investors responded to investment opportunities during the COVID-19 and how can founders increase their chance of securing quality capital under the current conditions?
Investible’s Investment Director Daniel Veytsblit recently appeared as a guest on digital streaming news channel Ausbiz to talk about investors’ current appetite for early stage investing and his tips for founders who are hoping to raise before the years’ end.
Veytsblit says while both founders and investors need to set realistic expectations, there is reason to be optimistic.
“There’s always an appetite for innovative solutions to large problems.”
“There was obviously a reset in the second quarter around growth expectations. But there is over $1 billion dollars in dry powder that has been raised within the Australian ecosystem and there are investors who are willing to take a long term view and make investments,” he added.
As an example, Veytsblit noted that Investible had invested in five early stage startups over the last quarter and made 25 investments over the last 25 months. He says many investors have remained active through the COVID-19 affected period and that activity is expected to pick up.
“We’ve gone through this period of uncertainty and whenever there’s uncertainty, investors naturally pull back a little, with exception of pockets of innovation and spaces where they see a specific opportunity. Over the next 12 to 18 months, however, a lot of that capital will be deployed and there will be funds raising in the market next year, both toward the middle of the year and in the second half of the year to refill the coffers.”
He acknowledged that while Investible is always looking for great founders who bring a unique competitive advantage to their business, investors do want to see founders taking strategic efforts to extend their cash runway – and if a founder is hoping to raise capital before the December holidays, now is the time to be speaking with investors.
“We always advise founders to allow two to three months to raise capital. If you do want cash in bank pre-Christmas, you need to be speaking with investors by mid-October.”
For founders who are already engaging with investors or who hope to do so early next year, Veytsblit has three important tips.
“The first step is to get the basics right. Show investors that you’ve got the founding team that has a passionate connection to the problem. Next, show your unique competitive advantage. Then, demonstrate that you can plan realistically through this period of uncertainty.”
“Second, don’t plan for any sort of covid-vaccine led recovery. Be conservative. Understand that sales cycles are likely to be longer and be realistic around your projections.”
He also advises founders to consider raising a little extra runway so that you can not only survive the downturn but also put your business in a position to accelerate when conditions improve.
“There is definitely an appetite for the right business and the right founders.”
You can watch the full segment on Ausbiz now.