The novel coronavirus has changed the way companies seeking capital and venture capitalists interact. Companies with early traction and potential are concerned about raising additional capital, and VC’s are assessing the ramifications of investing in today’s climate.
Many VC firms are faced with the important decision of maintaining the pre-COVID status quo, refining their existing strategies or holding off on investments completely. But while startup founders and VCs alike are navigating these unusual circumstances, raising capital during the pandemic is still entirely possible with a sound approach.
From 2009 through early 2020, Pitchbook reported that the US experienced a consistent rise in new funds, and that the amounts being deployed were larger than ever. However, when the pandemic hit in early March, it became increasingly crucial to look at the breakdown of capital available to secure funding, and the current capital breakdown looks like this:
• Between 2014 and 2020, there was $279 billion in capital raised by VC funds in the U.S.
• $74 billion has been deployed
• $76 billion are in reserves
• $150 billion in dry powder
This data shows there is plenty of capital available, but companies raising capital will need a robust plan to target the right investors, especially if they are raising capital for the first time and have yet to establish a rapport with investors. Some funds will still lean opportunistic, with others being more conservative by taking a step back as the pandemic passes, while others will be sticking to their investment philosophies that have proven successful and consistent through prior down cycles. Even during a pandemic, most VCs won’t be complacent when it comes to a great opportunity.
Companies in sectors that hyper-target the relevant investment groups are significantly more likely to secure investment dollars during times of uncertainty than those that don’t, but while this is true, it’s still a general rule of thumb in the VC community to not seek investment dollars during the pandemic unless it’s absolutely essential. These are unprecedented times, and VCs alike are still learning the best way to navigate the changing landscape.
If it’s absolutely critical to raise funds now, businesses should consider leveraging their existing relationships with VCs or using this time to get on new investors’ radars. Investors will most likely have a pre-requisite of meeting with founders in-person prior to any investment made, but nurturing a connection via email, LinkedIn or Zoom is a sound start.
Besides these considerations, securing investments during the coronavirus pandemic isn’t much different than it would be otherwise. Several of the same rules still apply, including learning as much as possible about the fund being approached, doing thorough research on different investment avenues, forging connections and creating an enticing pitch that’s relevant to each audience.
It’s also crucial to remember that investments we have seen materialize during the peak of the pandemic almost certainly were in the works for several months prior. There’s little data on how today’s virtual landscape will affect venture funding long-term, but the good news is as innovation breaks through new boundaries, and with an optimistic rebound of the economy, the long-term VC environment will be at full strength once again.
While it might be more challenging now than it was in 2019 to secure funding, companies are encouraged to be proactive if timing is of essence. If there’s a fund that has an interest but isn’t in a position to invest right now, founders may want to inquire if there are any other funds in their network that may be of relevance for introductions. Remember, there is still considerable capital available for investments, so don’t let this pandemic be the reason not to network, reach-out and connect with investors.
Leib Bolel is a venture partner at Grayhawk Capital and president of the Arizona Israel Technology Alliance.