Techboard Roundtable Writeup Part 1: How Covid is affecting the available funding options for Startups

What was clear from the Roundtable was that there is still funding available out there in a number of forms. Although there is a recognition that things will be getting tight and that founders are going to have to start to be more creative and strategic in how they fund their business, looking at funding from all available sources.  While the Roundtable did not specifically target government grants, it was stressed by several panelists that founders should familiarise themselves with what is available including the new Jobkeeper funding especially noting that many programs have been modified or extended as a result of the pandemic.

Lynda Coker explained that “Scale hasn’t really seen a lot of attrition. We still have deals in flow and if anything quite surprisingly we have had a number of potential angels getting in touch maybe because they have time on their hands.”

Steve Torso was quite optimistic but did highlight some critical changes in what companies an investor would choose to back. He also saw that investor’s approaches now might be similar to what was seen before the recent boom in startup investment. “For investors this is something that some investors have been waiting for for a decade... this effectively becomes the investors prime time.  We had the experience of launching during the GFC and that made a big difference. Up until 2013/2014 everything was strategic money so this is not new.” 

Steve did however also highlight that it might be harder for founders now “It is just that the only difference is you are going to have 5 to 10 times the amount of companies going to raise money in the next 6 to 12 months than whatever has before. That is what is going to be the challenge.”

Steve observed that he had noticed that investors were tending towards more strategic investments as well as investments in companies they could personally assist and that what he called the gambling or ‘punt’ money where a High net worth investor would invest into a startup as a gamble would probably disappear and he saw this as potentially impacting the momentum of capital raises.

Jonny Wilkinson from Equitise indicated that the Covid impact on the investors that back equity crowdfunding raises was currently unclear.  Jonny explained that the recent close of  three deals on the Equitise platform was flatter than normal where the final 20% of the time period for the raise was about half as quiet as what they would normally expect possibly showing a loss of confidence by the investors .  

“The single biggest impact to what we see is volatility in markets. When there is uncertainty and volatility people just hold off in making investments. They wait for it to die down. Which they are starting to, so, unless we have another spike in volatility we are going to go to market with a couple of companies in the next couple of weeks and get a bit of a sense as to where things are at.” Jonny Wilkinson, Equitise.

Jehan Kanga indicated he and his team at KPMG was seeing a difference in how companies were spending their money with a view to extending their runway by expanding the way they were using the R&D tax refund. “We are seeing a focus on product development, maybe a pivot away from marketing and sales and straight into product and validation and that obviously increases the quantum of R&D and the quantum that gets returned. Some companies have obviously done some financial modelling and figured that is how you can extend their runway by a couple of months.”

Cameron Owens also observed that the R&D tax refund is taking on a new significance. He observed, ”They value it even more than they have had historically. And one of the by-products for us is that actually getting an early payment of your tax refund is maybe more important than it once was. Particularly those businesses that are wanting to strengthen their balance sheets from a capital position. For us nothing has fundamentally changed and we are seeing a lot of people gravitating towards shoring up their position on their R&D tax refund as well as looking whether they can get an early payment. We are seeing growth in the market for our type of capital.”