It was always a difficult job for small medium business owners to secure funding for their companies and startups, and with that start of Covid-19 pandemic this process has become more challenging. With the economic downturn brought up by this pandemic, now we see more businesses and companies struggling with their sales and growth plans. The rate of stock market shrinks have made new records since the big 1929 economic depression and all of these has made the life of managing a small medium business very hard.
It is not shocking that investors are trying to curb their generosity to new enterprises and small medium businesses, and the surprising booming stock market has not significantly satisfied investors in recent weeks. The financial world has changed dramatically and big corporations must be prepared to adapt to shifting circumstances.
The new VC scenery in 2020
2020 gave company leaders great optimism. It followed a two-year rise in the volume of VC investment, partially due to the entry of new funds. With $34.2 billion invested in 2,298 venture projects and a further $23 billion in late-stage deals, Q1 2020 saw the largest level of investment ever in United States start-ups, while extremely strong investments in European companies amounted to €8.2 billion.
But COVID-19’s abrupt arrival rocked the boat. In an atmosphere of volatility, as per a survey by Slush, VCs understandably tend to concentrate on the portfolio firms, with 46 percent of them moving to ensure that they have ample cash flow to deal with crises. Fund managers are much more anxious about new projects than average.
In the other hand, to assume that the financing market has come to an abrupt end will be a mistake for upstart small medium business leaders. VCs are also searching for fresh prospects and always hope that promising firms will be less valued than before. Investors still are willing to gamble on new start-up companies, especially in some sectors like education and healthcare. Healthcare companies continue to thrive, with 12 percent of VCs saying they have moved to invest in healthcare and well-being companies, according to research from Slush.
If you take an overview of the last ten to fifteen years, it is evident that during a crisis investors do not swear off financing. A number of businesses that performed series C, series B and seed rounds in the last downturn and moved on to stellar exits are revealed by a study from Crunchbase. However, the commitment of this funding needs a transition in the role of successful entrepreneurs.
Due diligence comes to the fore
VCs are investing more resources on due diligence in the climate of great uncertainty, under heightened pressure to prevent making errors and to prepare for pitfalls of remote presentations, which hamper investors’ abilities to ‘read’ entrepreneurs and create trust.
Small Medium Business executives are expected to look more closely at statistics, forecasts, burn rates, cash paths, coronavirus effects on revenue, and plans for the future. In the words of a VC investor who spoke with Business Insider anonymously, “The financial arrangements of each startup are investigated more carefully during the funding period. Startups should be prepared to carry the VC through the burn rate and cash pathway of their startups to demonstrate how the pandemic has impacted revenues.
Company founders should train themselves to resolve this challenge by:
- Spend much more time writing compelling documents and analyses that are easy to digest.
- Render all the content open to prospective buyers immediately by storing it in an extra secure archive, like a virtual datacenter.
- Make sure that record is well structured so that investors can transfer their data easily without that much effort.
Markus Mikola, CEO of ContractZen, a business whose apps promote company governance and protected file sharing, says: “The current market environment is robust and emphasizes the importance of keeping everything in order to make bold steps soon.” Under those situations, the group management must be able to cope with emerging prospects and changes in market trends in the face of increased competition of globalized economies, the growing pace of industry, rising legislation and the threat of digitalization.”
It’s cool to be a camel
If the world of business used to only be about unicorns, camels take the lead today. Unicorns easily shine, but camels will be there for a long time. Turning your firm into a “camel” corporation means giving preference to durability, dedication, caution and customer focus. This strategy makes your business more secure, less externally reliant and more appealing to investors.
Remember that 50% of Slush’s investors conclude that the standardization of deal sizes takes 12 months or longer. For start-ups and other small medium businesses on short runways, a year delay in accessing additional financing may be disastrous, provided that 41 percent of start-ups are already located in the “red zone” with work capital for less than three months, as calculated by Startup Genome.
Kareem Aly, head of the cross-stage VC fund at Thomvest Ventures, urges all investors to seek “businesses with scrappy teams that are able to keep their burn-rate down while concentrating on product and UI / UX,” a strong pledge of trust for camel firms.
Hold the partnership emphasis on
Excellent corporate executives concentrate on partnerships in all directions — with clients, staff and partners — and now this is more essential than ever before. A core part of the “camel” strategy is customer focus. If you can illustrate that all your services and products are personalized, it can improve your ability to show funders more value.
Remote pitches make it difficult for investors to develop a partnership with potential entrepreneurs, because many VCs tend to invest in familiar businesses. Slush found that the first-time entrepreneurs are suffering much more than repeat entrepreneurs to raise funds. David Rogier, CEO and Masterclass cofounder, who successfully raised his E round in COVID-19, highlights the need to improve ties and connections to score funding.
This is not exactly the time for corporate owners to attempt to slash jobs. Your workforce are your strength, so make sure to recruit and attract the best talent. Clearly set up a hiring freeze to minimize expenses and only do lay-offs if you are in a serious danger of going off the track.
Funding for all those who know where to find is still around
There is no doubt that the outlook for small medium businesses is worrying. Many VC funds are decreasing their investing operations to concentrate on portfolio firms, but there remain funds and investors who work with the ability to secure critical investing as long as entrepreneurs take note of how the game has shifted.
Small Medium Business owners and executives who are capable of acting like a camel, not a unicorn, are on a path to growth, respect their relationship with clients, employees and consumers and put due diligence at the top.