How to raise capital during a slump

Guest post by Rob Shannon, Director, Martinsen Mayer

If you’re a startup founder, you probably spent a lot of the pandemic thinking about how you’d raise funding. Or, like the rest of us, you spent a lot more time tuning in to your favourite Netflix series. And those two things have more in common than you’d think.

Few people know that Netflix was founded during a recession back in 1997. Seven years before Blockbuster reached its peak in 2004. Initially, Netflix shipped DVDs in the mail. It should have been a flop.

But today, only one of the 9,000 global Blockbuster stores remains, like a memorial to the much-loved VCR. In contrast, as global lockdowns began, Netflix gained 37 million subscribers, and the streaming service took the market by storm.

While subscriptions to the platform are slowing down (a story for another day), Netflix is living proof that global crises can be a stimulus, not a stopping point, for innovation. And this is something startups need to take heed of as this slump.

The warning signs are there for early startups. In May, the  Irish Venture Capital Association VenturePulse survey in association with William Fry reported that in Ireland, deals under €10m took a big hit in the first three months of 2022. Deals in the €5m to €10m range fell in value by more than half, while those in the €1m to €5m range also halved from €70.3m last year to €34.5m in Q1 2022. The value of deals below €1m dropped by 31% to €8.9m. Seed funding was also hit, falling nearly 40% to €22.3m from €36.5m last year.

So how can startups raise capital during a slump and increase their chances of becoming the next Netflix?

Timing is everything

Some startup founders were battered during the pandemic, whereas others had quick wins. Whilst travel platforms were left high and dry, delivery services cashed in.

Early in the pandemic, LetsGetChecked, an Irish virtual care company founded on the premise of providing remote healthcare and testing, developed an at-home COVID-19 test kit. Consequently, they raised $71m,  one of the biggest Irish funding rounds of 2020. But not all startups get a ‘yes’ so easily.

Investors say no for various reasons; often, it’s because an opportunity is outside their niche. For example, the product is FinTech, but they operate solely in eSports. Other times, they focus only on products rather than services. And then sometimes there is a slowdown in international investment, and areas, like hospitality, are furthest from their minds – even if the business is set to be the next Airbnb.

Unless you can predict the future accurately, mitigating against bad timing is tricky. But there is good news. Risk reduction and building resilience is something startup founders do every day without a second’s thought.

What’s vital is figuring out what resilience looks like in your specific space, and then when it comes to speaking with investors, highlight how you’re building it into your business model. Assess whether your business is actually pandemic proof, and consider worst-case scenarios. Sometimes you might need to wait a while before pitching it to investors.

Pay attention to current events and market trends, and use them to guide how and who you approach because timing is critical but not as important as the next piece of advice.

Generate leads like there’s no tomorrow

As a startup founder, you’ll hear a lot of ‘nos’. So many that you’ll start to think a ‘yes’ won’t ever happen. Persist.

Your approach to lead generation should feel like a sales role. Unless you continuously invest in new connections, the well will run dry. Be on the lookout for relationships all the time.

It’s also important to remember that investors have biases. Some of them made their money in MedTech, others FinTech. Maybe they’re not looking for an AgriTech platform to add to their portfolio. Again, this doesn’t mean your idea is bad.

At the same time, you might connect with an investor who loves AgriTech platforms like yours. And then you’ll get an investor and an experienced guide on your side.

A one-and-done approach won’t serve you in the long run. Don’t get too comfortable with a warm lead and forget to nurture other relationships.

Instead, you should build a steady and reliable network of connections – not just for funding but for advice and guidance. In these situations, second-time founders or serial entrepreneurs can provide as much value as a cash injection.

‘Investor’ isn’t another word for ‘expert’

Don’t fall for the omniscient stereotype. VCs aren’t always experts in your field. They might have a more comprehensive strategic understanding and a good level of industry awareness, but there’s a good chance your niche is new to them.

That’s why everyone tells you communication is key to a good pitch. I’d go one step further and say; that it’s not so much communication as storytelling. That’s what helps you land an investment.

Not only do storytelling skills help you harness the power of your team and convince customers that your product or service is top. They can persuade investors outside of your field that they should start investing in it.

It’s all too easy to assume a level of knowledge in the boardroom, but make sure you also give a thorough explanation of your business model. Don’t miss out on curious investors because you communicate in niche industry jargon.

Some investors will stick to what they know while global markets are in flux. The best thing you can do to encourage them to branch out is to create a clear and understandable pitch.

Claim the peaks, endure the troughs

The pandemic wasn’t a crisis for startup funding – far from it. Global venture capital doubled in 2021 compared to the previous year. And most of that capital was invested in the tech industry.

It’s clear to see why. Never before has the world relied so heavily on technology to keep things running. Healthcare systems embraced remote monitoring platforms when they couldn’t see patients face to face. Businesses moved in-person meetings to Zoom, Teams, and Meet. At times, we all took a step away from the overwhelming real world to tune into our favourite Netflix show.

Tech funding has hit a slump, and you will find it harder to get investment. But, if you can position your startup in a way that speaks to the challenges of tomorrow, and not just today, investors won’t ignore it.

To raise capital during a slump, you must be proactive, patient, and thick-skinned. But isn’t that what all great startup founders should be anyway?

Martinsen Mayer specialises in helping venture-backed organisations make strategic hires and scale their teams.

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