While raising capital for a new start-up has never been easy, this coronavirus-affected year has added to the challenges facing entrepreneurs who have been forced to go online to build investor connections and pitch for funding.
January Ventures, an investment fund (co-founded by co-author Maren Bannon) that invests in start-ups led by females and people of colour, regularly asks entrepreneurs about the challenges they are facing. Its September survey of 100 early stage start-ups found that 65 per cent of female founders felt that their gender was holding them back — up from 50 per cent in April — whilst their sense of support from the entrepreneurial and venture communities is at an all-time low.
With these issues and more to overcome, how can early stage founders obtain the investment and support needed to get off the ground?
It takes a community
If you do not have a community around you when you start a business, it is important to build one. This means joining online networks of other founders and reaching out to investors on social media.
“Make connections to people who are committed to your success even before you set out to raise your first dollar,” says Julia Collins, founder and chief executive of Planet Fwd, a start-up that promotes regenerative agricultural techniques. “Pour [attention] on those relationships until you have formed a community around you. It is this community that will help you succeed.”
Erika Hairston, founder and chief executive of Edlyft, a peer to peer tutoring platform for computer science and engineering students, says she pushed herself to meet investors outside of her network to raise $1.4m virtually in June. “Ten per cent of our investors were people I met purely on Twitter,” says Ms Hairston. “I was forced to get scrappy, asking everyone I met for an intro and attending open investor office hours.”
Spend extra time on fundraising preparation
As well as saving travel costs, online fundraising has also opened the potential to meet investors from a broader range of geographies. However, it is crucial to establish an online relationship management system and — since investors cannot meet founders in person — set up a data room to keep information secure.
“I would have up to 10 virtual meetings a day, back to back, and everything would blur together,” says Emma Sánchez Andrade Smith, founder and chief executive of Jefa, a digital bank focused on Latina women in the US and Mexico. “I set up a robust customer relationship management, even including notes about the person’s video background or personal facts like children’s ages.”
Data show that fundraising during the pandemic is challenging: European venture funding is down 17 per cent for the first three quarters of 2020 compared with 2019, according to Crunchbase. However, funding picked up in September, led by the UK, Germany, France and Sweden.
Timing is crucial, and we have seen that the global pandemic has benefited some sectors more than others, prompting some companies to accelerate their fundraising timetables to meet new demand.
“The focus on the home has grown due to remote working and we have seen an increase in online adoption,” says Lucas London, founder of Lick, an online home decor brand committed to minimising its impact on the environment.
“These market dynamics supported our growth so we decided to accelerate our funding round,” he says, adding that the response “was strong, from both new and existing investors”.
Be patient and persistent
If you were fundraising at the start at the pandemic, you probably would have assumed that all venture funds were closed for business because of the radio silence. Getting in front of investors sometimes requires creativity, connecting with them on social media or via colleagues.
“Be patient and persistent. A lot of investors who invested in our latest round had turned us down nine months earlier. There is still plenty of capital around if you can show solid execution and have a clear vision for where you want to go,” says Freddy Ward, one of the founders of Wild, which sells environmentally friendly deodorants.
Do more with less
For anyone unable to raise as much as they would have liked or from the right investors, an option could be to raise less money and to get creative with your launch timetable.
“I don’t buy into the idea that founders have to give up control if they want to grow their business — because it’s often their obsession with detail and their values that makes the company what it is. You should never compromise that away for money, because you’ll lose more than you gain,” says Vicky Brock, founder of Vistalworks, a data technology group that detects and prevents the sale of illegal and unsafe products online.
It is wise for founders to do as much due diligence on investors as possible. Speak to founders of other companies that they have invested in and ensure that your values and goals are aligned. Most business relationships with investors will last at least a decade.
There is plenty of capital around — take your time to find the right partner for your business.
June Angelides is a venture capital investor at Samos Investments, a VC firm that invests in European businesses. She was named one of UK’s most influential Bame tech leaders by the FT in 2018, and was this year awarded an MBE for services to women in technology @JuneAngelides
Maren Thomas Bannon is co-founder and general partner of January Ventures. @Maren_Bannon