3.5 mins | 781 words
By: Megan Maltby

As an investment analyst, I coach and provide tech or tech-enabled startups (from early-stage to scaling) strategic recommendations based on data and analysis to help them raise funding. Lately, there’s one question I’ve been getting a lot, “How should I adapt my fundraising strategy in light of COVID-19?”. 

Over the last few weeks, I have joined several virtual roundtables and Ask Me Anything (AMA) sessions with investors regarding fundraising views and advice amidst COVID-19. These included perspectives by both angels and venture capitalists based in Canada and the United States.  

I have compiled a roundup of takeaways from these sessions, and am eager to share them with any tech founders left perplexed about the future of venture investments.  

1. 1. Although many investors will say they are “open for business,” you will see a slowdown on new deal activity. This shift is taking place for two major reasons:
      • First, most investors are focused on assisting portfolio in the short term (next 3-6 months) and simply don’t have the bandwidth for new deals. Takeaway: If you were planning to raise soon, try to delay for a few months or to prepare for a longer time to close. If you were in the middle of a raise and have term sheets out, try to close ASAP. 
      • Second, investors are adapting to a new normal: building relationships with prospects via remote communication. Previously, most investors relied on face time to build trust with founders or warm referrals via in-person networking with other VCs. Takeaway: Although deals can still get done, it may take more time before an investor develops that trust and willingness to jump into business with you.  
   2. Expect a buyer’s market, and don’t let pride take over. Valuations will go down (consensus is an average 20%-30% drop), and investors will push for better terms to manage risk (e.g. price protection, liquidation preferences, etc.) Takeaway: Don’t let emotions take over and get too hung up on valuation; even a down round would be better than closure. Companies have come back from it in the past and done well. The time you spend arguing over terms is time wasted – and, ultimately, you may be in an even worse leverage position if the process takes too long.   
   3. In prospecting and diligence, investors will likely shift expectations and preferences moving forward. They will devote more attention to business model fundamentals (i.e. revenue growth, margins) and become more focused on profitability. They will shy away from certain sectors that have been particularly hurt by the pandemic (e.g. travel). Takeaway: Prepare to address your “pandemic story,” i.e. how your business is impacted (positively or negatively) by COVID-19 and your forecasts and mitigation plans for the best-, medium-, and worst-case scenarios.   
   4. 24 months runway is the new 12-18. Investors seem to be in agreement that milestone achievement will now take about 6-9 months longer than the pre-COVID-19 average. Takeaway: Consider ways to increase runway and, ultimately, your chances of survival. Conduct an aggressive review of expense items to cut burn; examples include stop perks, initiate layoffs, renegotiate rent and other contracts with vendors (see Preserving Cash and Talent: A Practical Guide for tips). You can also find ways to generate new revenue and liquidity (implement discounts, transition existing customers to annual billing, leverage government subsidies , etc.).   
   5. Change in overall investment thesis and activity will be dependent on the type of investor. For example, Corporate VCs are more likely to be impacted by public markets and experience cuts to venture investments as a ”discretionary” item by senior management. Angels and family offices will likewise be affected by public market volatility. Financial VCs that have capital to deploy can’t just sit on it; they will still need to be active. Takeaway: Target accordingly – focus on these investors in the short-term.   

About the author 

Megan Maltby is Invest Ottawa’s Senior Investment Analyst. Megan conducts research and provides investment data, analysis, coaching, and strategic recommendations for technology startups and scale-ups. She also builds and maintains relationships with angel investors, venture capitalists, and nondilutive funding providers.   

Before joining Invest Ottawa in her current role, Megan spent time as an Investment Analyst at Innovacorp, an early-stage venture capital firm, and First Angel Network, Atlantic Canada’s organized angel investment group. In these roles, she was responsible for prospecting pre-seed and seed-stage companies, conducting investment analysis, managing the due diligence process for potential investment opportunities, and coordinating the portfolio review process. She also did a stint managing Innovacorp’s acceleration programs and nondilutive funding activities, building a pipeline for the firm’s venture capital fund.