This is the second part of the writeup of Techboard’s Roundtable: Funding options for Aussie Startups. See Part 1: How Covid is affecting the available funding options for Startups.
In a wide ranging discussion our panel had some very useful advice for startup founders on issues including what founders should focus on in their communications with potential investors, timing of fundraising, company valuation and mechanisms to delay a valuation.
What is expected from founders at times like these
Jehan Kanga from KPMG indicated that the impact of the current environment on how difficult it might be to raise would depend where you are playing in the market. “If a startup has taken its product through validation it will still be able to land deals. The more speculative side is what will suffer so the message to founders is to work on product or service validation.”
Jonny Wilkinson, Equitise: “What you need to articulate to potential investors what you're doing where it fits in the current market and climate and what the future looks like. If you can handle that, understand what the impact is going to be and be very clear with investors that give people certainty and a bit more confidence and that is when people are more likely to open up their chequebooks.”
“There is going to be more competition it is going to be harder and you have got to be really focused and able to articulate what you do and what you do well as a business to attract funding”
What is good timing to try to start raising capital ?
The panellists agreed that the time that it will likely take to raise will be longer than usual, particularly for larger amounts (which in the current environment is probably amounts of $1m or more) comments from the panel included. Companies should do what they can to extend their runway although the expectation from the panel was that the worst time to raise may be the first half of 2021. There is also the concern that raising right now might come at a higher equity cost than usual.
Raising Capital right now might come at a cost... indications are that many investors are seeking to invest at lower company valuations
Jehan Kanga “We are seeing 30-50% lower valuations so perhaps use a SAFE note where you can as it delays the valuation.”
Jonny Wilkinson explained that regardless of when you are raising capital, unless there is a competitive situation between investors you will nearly always have a situation where an investor will try to push down a valuation.Cameron Owens, Radium Capital: “We are seeing a demand for our product just because people are wanting to avoid a dilutionary event and strengthen their balance sheet as best as they can so they can raise at the right time on their terms.”
Where to go for help
Steve Torso “From a founder’s perspective, if you already have shareholders this is a nice time where shareholders get behind their investee companies to support them. For any founders listening start with your own shareholders as it is amazing the networks they may open you up to as a starting point.”
Jehan Kanga, KPMG: “There are a lot of ex founders, entrepreneurs and investors that really want to keep the ecosystem alive so I would say if you are a founder and you are in trouble reach out because there are heaps of people in the ecosystem who are willing to provide free advice even get down in the trenches and help out because we are all here to make sure the ecosystem gets through the next couple of months
Steve advised founders to “be diligent, be visible, be aggressive and know that whatever you are planning to do will take longer and will have to work harder for every single inch you get.”
Jonny Wilkinson urged founders to “remember this is not a sprint it is a marathon work hard if you have to do what you can to be inventive and resourceful but don’t kill yourself because it is a very stressful and difficult time. Don't feel like you have to come up with a solution. Maybe working out what to trim in your business to be 70% of what you were doing before this and you can come out the other side and cut costs is the best outcome. Not everyone is going to be able to pivot and do adjacent things.”
Jehan Kanga helped the Roundtable end on a positive note: “One really interesting big trends that we are seeing... is that many investors are looking at the world anew and looking at how will the world change and how can we be part of that change.
So if you have got a product or a startup that is really looking at that change the world like space and cleantech and social impact where that change can be scaled and deliver a new world then that will have a lot of traction and some of the companies coming out of the GFC they really changed the way we thought about everything from payments to precision medicine.”