The only certain thing right now is uncertainty. We're already in coronavirus recession and our government is talking about putting the Australian economy into hibernation (whatever that means). How bad this is going to be is anyone's guess.
However, while you might be tempted to conclude that early stage companies are going to have trouble raising funding in the year to come, history suggests that experienced venture capitalists and investors will still be scouting for top start-ups through 2020.
Did you know, during the last major downturn, ie the GFC, these start-ups were born and funded:
- Uber raised its seed in August 2009 at the height of the crisis, and raised again in
- October 2010
- AirBnB raised its seed in January and April 2009
- Spotify raised its Series A in October 2008
- Dropbox raised its Series A in October 2008
- A little law firm called Marque launched in August 2008!
These companies were born in tough funding environments and some might say, succeeded by keeping their heads down, being creative and thrifty. They demonstrate that capital will continue to be deployed in this climate - albeit cautiously.
So, if you are trying to raise in 2020 here are some things to think about:
- raising capital is going to be more expensive - ie investors are going to demand more
- equity / valuation is going to be lower
- rounds are going to be smaller
- your pitch deck needs to contain a realistic contingency plan - in addition to the usual
- financial targets
- investors are going to be more focused on KPIs that drive sustainable profitability than
- ambitious growth projections
- investors will likely accept less risk, and therefore will likely request preference share
- terms with liquidity preferences
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