Does fundraising during COVID-19 seem improbable to you? Here are 5 valuable insights from Global Portfolio Manager Estefania Almeida to give you an edge when raising capital.
Uncertainty is rife across global markets as the pandemic continues its never-ending run. The ongoing COVID-19 situation has had a particularly strong impact on most startups’ revenue streams, with many scrambling to raise enough capital to avoid shutting shop.
To learn more about fundraising during COVID-19, we talked to Estefania Almeida, global portfolio manager at Brinc, a venture capital and accelerator firm headquartered in Hong Kong with offices in the US, Australia, Bahrain, Poland, Spain, and China. The firm currently works with 110 companies, which span across a range of industries from clean technology to robotics, and supports them in their capital raising efforts.
Here, Estefania discusses 5 important factors all businesses should consider before looking to raise funds during COVID-19. Here’s what she had to say.
1. Investors are still deploying capital, but due diligence has become much more stringent
“The recession has decreased overall activity and eagerness among investors,” Estefania relates. However, all hope is not lost: “There’s still quite a bit of capital that is being deployed, but investors are being extremely cautious about it.”
With investors conducting more comprehensive due diligence to ensure business sustainability, Estefania advises companies to go back to the basics. “If you have a business that is fundamentally sound with good margins, despite an initial slowdown in business, your company will eventually make it through.”
2. Avoid relying solely on your industry’s potential to draw in funds
Investors, much like everyone else, can be tempted to follow trends, but Estefania warns against banking on just your industry’s attractiveness to raise capital. As she recalls from her own experience, “Being in a hot industry is not equivalent to being a quality company.”
She contends that although capital-intensive industries are traditionally considered to face more difficulty in fundraising, investors will nonetheless identify lucrative ventures in firms that demonstrate operational excellence.
For a more effective analysis of your fundamentals, she recommends measuring milestones, depending on the stage and industry you are based on. This could range from typical financial measures to industry-specific metrics like projects delivered on budget and net promoter scores. “Determine your own key performance indicators that are representative of your capabilities,” she advises.
3. Cut your burn rate and don’t rely too heavily on external funding
“If you’re fundraising, fundraise for longer.”
As investors enjoy increased negotiating power amidst the crisis, company valuations will tend to be lower. With the fundraising process taking longer than expected in current economic conditions, it’s advisable to prepare for the long haul. “If you usually fundraise for 12 months, expect to do so for 24 months now,” Estefania says.
In addition, she recommends that firms create reserves to keep some collateral in hand for when things don’t go as planned. “Nobody knows when this crisis is going to be over, so be cautious, and don’t burn out. Conduct a triage to prioritise important expenses, and be sure to ask for budgeting quotations from multiple sources,” she cautions.
4. Capital deployment is growing in Asian and Gulf markets, although the US remains the first point of call for early-stage funding
Determining which regions are experiencing bullish or bearish investor sentiment is not always a black and white premise. As a general rule, “The more severe the country is hit by the outbreak, the less capital will flow into the market,“ Estefania explains.
However, she observes that there have been interesting patterns displayed when deploying capital as of late, especially into emerging markets and developing economies like the Asian and Middle Eastern markets.
Despite the increased willingness of investors within the Eastern hemisphere, she notes that the US still remains in a dominant position in being the first point of contact for funding. “Historically, they have been more active in innovation and are less risk averse. Comparatively, their capital has been used more. Having had more experience in investing into early-stage businesses, they are also more risk tolerant than most regions.”
5. Discern investor patterns in different regions before raising capital
She stresses on the importance of understanding the different ways in which investors act in different regions before initiating fundraising efforts. “Chinese investors sometimes require personal guarantees or long vesting schedules among other conditions, which, in the West, is not standard procedure – especially for early stage companies,” she states.
Moreover, the differences in culture and regulatory restrictions can create additional hindrances in the process. “ For example, if you’re going to enter the China market, it can be quite difficult to fundraise inside the country, especially given the language barriers and liquidity limitations. Make sure you realise the differences and obstacles you will have to face before you start looking to raise capital,” she advises.
Fundraising successfully during an economic downturn may seem like a far-fetched proposition at first, but with these insights in mind, you can turn things around and close a successful funding round to drive further growth in your business.
More About Estefania Almeida
With over eight years of experience in private equity firms and VCs like Brinc, Click Ventures, and Ecos, Estefania has a broad-based experience in fundraising for technology and hardware firms. Having noticed many high-potential ventures failing to secure early-stage funding, Estefania has also become a mentor for startups to help connect them to essential networks and resources, allowing them to successfully fundraise.