How to adapt your investment strategy as a result of Coronavirus

by Startacus Admin

Require external capital to fund growth and worried about the potential impact coronavirus may have on your funding plans? Read these insights from Raising Partners, a professional services company for SMEs, who help businesses get investment.

"It’s undeniable that these are uncertain times, not only for our health, but also for businesses. The outbreak of Coronavirus and its global impact isn’t a scenario many will have planned for. But here we are, and we’re all in it together. The world continues to turn and we need to learn how to adapt. For those running businesses which require external capital to fund growth, the potential impact Coronavirus may have on your funding plans is likely nearing the top of your new list of challenges. 

To provide some guidance through the storm, we’re sharing the ways you can adapt your investment strategy during unprecedented times. 

“What is likely to change within the investment ecosystem over the coming weeks?”

The good news is that if you’re raising money at seed, growth or even venture stage (sub £10million) it’s likely that Coronavirus will have minimal impact on the amount of liquidity in this asset class. Unlike stock markets which have taken a significant hit, investing in private businesses is a long-game.  

Mark Draper, an angel investor we work with regularly at Raising Partners shared, “I think now more than ever it’s critical that angel investors continue to invest in early stage start-ups and make SEIS and EIS investments. I’m particularly keen to see businesses who are adapting and innovating in the face of adversity!”  

Scott Simpkin, Senior Campaign Associate at Seedrs gave us a breakdown of his thoughts on what might happen with different types of investors, which makes for good context for early-stage businesses:

• Raising institutional money takes a long time (typically 6 months). That might be running it tight given new cashflow uncertainties…

• Angel money may be harder to raise as meeting investors will be tough under the government’s isolation advice, and angel networks will probably not be running events and pitching competitions for some time…

• Larger investors will likely have had significant exposure to the economic downturn in the public equity markets across the world

This said, there’s fantastic diversity within investment and we’re seeing investors adapt to the changing situation just as start-ups are. 

Angel groups such as NorthInvest have moved their monthly pitching events to digital webinars, VCs are hosting investment committees and virtual coffees with founders and angels are continuing to take advantage of SEIS and EIS tax relief incentives.

Even from a quick browse through some of the crowdfunding campaigns that have been live this week, it’s clear that campaigns have still managed to reach their targets, if not exceed them. 

“What should I consider changing about my investment strategy?” 

Based on your needs and what you’re looking to use the money for, it may make sense for you to raise a smaller round. Scott of Seedrs suggests, “a £100k-£200k bridge could be a great way to keep things going.” 

“This could have a number of beneficial effects: it reduces the supply in your round, thus enabling you to build scarcity that may make investors act quickly. It also reduces the length of time it will take for you to raise the round, as you won’t need a long list of investors as you would for a larger round.” 

In a similar vein to making the round smaller, it may be worth moving more quickly than you’d originally planned, Anthony Rose, founder of Seedlegals shared, “when things take a turn for the uncertain, you’re better off taking some money now rather than holding for more money later”. Being an entrepreneur is about being resilient, and knowing when to take a risk, that applies now more than ever.

“Should I reassess the valuation of my business?” 

Consider getting an ASA round (Advanced Subscription Agreement) in place. ASA’s give investors a discount on your next funding round and delay you giving equity away until you’re raising in a more stable economic environment. Valuation is always a sticking point for founders and you may be concerned that your valuation justification may be weakened by the impact of Coronavirus on your business whilst investors continue to negotiate for a bargain. An ASA elevates this worry as you can raise funds quickly without spending time negotiating. 

“What is your advice to founders on getting through the next few weeks from a cash flow perspective?”

You are more resourceful and creative than you think! Do you need the full amount that you’re raising? What can you get by on? Founders are natural problem solvers and investors will be looking to see how you respond to an unexpected scenario. One thing is for certain, sitting on your hands and hoping it will all be ok isn’t an option!

“Can (and should) I still be trying to raise money during Coronavirus?”

The short answer is yes! What we know is that raising money can take between 2-6 months from starting to get investor-ready to cash in the bank depending on the size of your round. Of course, this timeline can be accelerated, but if you need money in 6 months time, regardless of the impact of Coronavirus, you can’t wait for the storm to pass before you start speaking to investors. We know all of this because we’re actively working with clients and securing investment right now, and this hasn’t changed since the outbreak. Whilst we are having to adapt strategies, there are still plenty of opportunities for raising finance during this turbulent time.

Ultimately you should be raising what you need and doing so in as efficient a way as possible. Crowdfunding is a great way of bringing all of this together in an isolation-friendly way!"

For more information and insights from Raising Partners, register for their upcoming live webinar on the ‘Impact of COVID-19 on raising investment – what you need to know’ on 26th of March here. If you’d like to have a chat with them about how they’d be able to help you over the coming weeks, book in a call.

Connect with Scott and read more about his thoughts and a campaign on Seedrs here >

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Published on: 24th March 2020