These are undoubtedly tough times for businesses, even more so for startups that operate with very low margins
The COVID-19 pandemic will have long-lasting and far-reaching consequences on the global economy. Even though lockdown restrictions have now been lifted in many countries, financial markets are expected to take a long time to recuperate from the crisis.
As per the International Monetary Fund, the coronavirus pandemic is the worst economic setback since the Great Depression. It predicts a magnanimous loss worth US$9 trillion in GDP over the upcoming two years.
These are undoubtedly tough times for businesses, even more so for startups that operate with very low margins. Along with facing low demand, revenue losses, swiftly changing consumption patterns, the start-up industry is dealing with the problem of raising funding. As investors become wary of the pandemic’s economic impacts, there has been a sharp decrease in funding activities.
This leads to the main question – how to finance your start-up during COVID-19? Continue reading to find out the answer.
Research the Right Type of Funding
Jennifer Neundorfer, general partner at venture capital investors January Ventures, says that after a hiatus at the start of COVID-19, venture capital (VC) investing is starting to pick up pace again.
To leverage this opportunity, identify which investors have a high probability of investing in the sector your start-up belongs to. Research the latest investments they’ve made to collect important details such as the average investment they’ve made, funding round (whether they generally invest in seed-stage or large-stage start-ups), etc. Doing this will allow you to get an edge over other start-ups who might be competing for the same capital.
Many governments are also offering Coronavirus relief funds for businesses and startups. Research if your local, state, or national government has funds available. How much is available? For which different sizes of businesses, and in what industries or markets? In the UK for example, the government introduced the Coronavirus Business Interruption Loan Scheme (CBILS) which offers finance of up to £5 million for businesses to continue operating during COVID.
Keep in mind that you might need to make your pitch virtually, so find out ways in which you can make it stand out.
Reevaluate Your Business
After you’ve completed your research, reevaluate the feasibility of your business model in the existing environment. Ask questions like – Is it scalable? Is it going to generate profits? Does it promise equitable and sustainable growth in the long run? If the answer is no, you need to make some modifications to make sure there’s a solid demand for the products or services you’re going to offer.
The pandemic has led to a huge change in consumer mindset, which is influencing their spending habits and purchasing behaviour. For instance, consumers are likely to opt for products or services that give them the best value for money. Consumers are also buying more goods online. Plan your next steps after taking these changes into consideration.
Restructure Your Message
The last stage involves restructuring your message for the investors. Investors invest in businesses that have a strong Unique Selling Point (USP) that makes customers want to buy goods and services no matter the current situation, so make sure that your USP is reflected in your pitch.
When it comes to valuations, set achievable and realistic valuations to gain the trust of investors and lessen the dilution risk. Also, be open to negotiations.
Financing start-ups seems to be a time-consuming and arduous process, but the situation is gradually getting better. Investors have recovered from the initial shock and are willing to invest in businesses again. So, gear up and get ready to secure some solid investments! With the vaccine now being rolled out in many countries, 2021 is the year to get your business operating stronger and more successfully again.