After the engaging discussions with the community at the e27 Webinar: The future of investing, I wanted to share some more guidance to startup founders on how to manage the crisis.
Who is the winner?
Early stage companies have more adaptability and can easily make changes compared to larger companies. While there are advantages being in the early-stage category, as you are able to manoeuvre and adapt your product, during these current times, you have to really take into consideration the sector you are in.
Some sectors such as hospitality and travel have been severely affected and need to think of a complete rehaul and reassessment of their business and business models. Others such as B2B SaaS, healthtech, e-commerce have seen a rise in demand.
As things change, it boils down to the survival of the strongest teams that can work together to come up with the customer and product-led business models and growth. When defining what goes into the making of a strong team, there is no difference between pre-COVID-19, COVID-19, and the new normal.
A strong team is a strong team and some of their key characteristics are experience, expertise, execution capability, and an obsession with the problem they’re solving. There is a strong differentiating factor between someone who is just opportunistic vs someone who is obsessed with their business.
Also Read: Is your startup in need of funding? Let the e27 Pro Fundraising Highlight do the trick!
Overall, the drive, adaptability, and a great product-market and founder-market fit within the team are crucial.
If a strong team is at a point of determining where to start, there is a lot to consider- If you are starting something in a popular vertical, there’s always going to be much more competition. There are also opportunities that can be found in less popular verticals and less crowded spaces. One must look at both sides to balance between competition and intensity.
Fundraising during the crisis
I am cautiously optimistic about the early-stage startup scene as funding rounds are still taking place and I firmly believe strong teams will get funded. Mediocre teams with rigid business models that have not been well thought out may have been able to get funding during normal times– but now, that is not going to be the case.
The most important thing for the early-stage funding scene is LP capital, which is largely speaking still in the market. While angel investors and family offices are naturally being more cautious, VCs are still investing. Southeast Asia-focused venture capital funds US$1.3 billion in additional dry powder in the first three months of 2020.
While the appetite for risk has decreased significantly over the last few months, people still need to develop a COVID and crisis-proof plan and conserve cash to have a longer runway. This would mean a normal time cash runway (18-24 months), plus another six to twelve months.
If there is anything positive that comes out of a crisis, it’s new ideas and ways of doing things to adapt to circumstances. Think of this as a time of opportunity, especially in the area of business model creation-innovative business model structures are critical for this foundation of any startup.
The path of profitability matters in the real world, not as much the plan. While it is important, a financial plan in the seed stage doesn’t mean everything as it is largely a test of logic and a test of understanding your business. What matters most is unit economics and having a clear line of sight to making money down the line- the sooner that is, the better. Venture Capital exists for the purpose of getting you thereby fuelling your growth.
In terms of reaching out to investors, there are various ways to connect. Warm introductions are always more powerful and usually help get your first meeting or call. It will be harder to get funding from people you’ve never met, so start with the people you’ve previously met face-to-face.
I would still say, don’t underestimate the power of cold reach outs, persistency, and pure hustle. I also strongly advise founders to research and do their homework on the macro and micro aspects, background of the investors, and VCs and reach out to people to get a sense of the sentiment.
Listen to things like podcasts from experts and it doesn’t really matter if you’re a first-time founder, just go for it!
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