Investing in Startups – Part 1: Are investors Still Investing?

2020 has been a destabilising year for startup founders. The COVID pandemic locked the world down, bringing business to a standstill and the threat of a global recession loomed. Venture capitalists and investors pulled their haunches in, but all is not lost, the investors are still out there, and they are still looking for startups to invest in.

Getting the Priorities Right

VCs have been investing, but during 2020 many were spending time prioritising their own portfolios with less funding for new ventures. Now is an important time to utilise the relationships with your current investors.

Your Sectors may be the Key to Successful Investment 

According to a survey from PWC, the most likely sector for investors over the last 12 months has been life sciences, biotech and healthcare to invest in (EdTech came a close second due to the jump in online learning).

If you look at the response to COVID19 of an investor such as Oxford Foundry, their action plan focused on being able to rapidly scale ventures who were responding directly to COVID19, where they could help to build and scale ventures bringing solutions to the challenges caused by the pandemic.

How Long Could This Uncertainty Last?

Most startups really need to ensure that they can cover the eventualities of recession and subsequent recovery. The first phase of a startup is always the most difficult as you try to raise and secure more funds, generate more revenue and try to reduce your cash flow. With some funding streams expected to slow down in the next 12 to 18 months, startups could do no worse than looking to cut expenditure where they can to help with a negative cash flow. Whilst investors may be conservative in making new investments; they are also ensuring that the current investments that they have are being used wisely and that the startups can demonstrate resilience in today’s financial climate.

Pre-Seed Investments Could Hit the Boom Time

According to predictions from Forbes Magazine (Dec 2020), pre-seed is likely to be a growth area for 2021. Pre-seeds have often been forgotten about as funding in seed takes priority. Pre-seed funding will help founders who would have ordinarily come from a background where raising capital to create and establish a business was not a problem as investments often take longer. The prediction is that pre-seed funding will become a round in its own right, setting a great platform for founders.

There is investment – you just need to be patient

As I said in my first paragraph, all is not lost. There is still pre-seed and seed investment, it is just about knowing where to look for it and being patient when it comes to the rounds. Investors will be, of course, cautious, meaning that it takes longer to secure new investments. With face-to-face meetings not being able to take place during lockdowns, there is the added complexity of trying to secure new investment from VCs that you may have only met remotely – this doesn’t always bode well for developing a new and strong relationship.

If you need a round of investment to keep growing – the advice is to use your existing investors and look for the minimum investment possible to keep going.

Finding a new investor won’t be impossible, but in the current climate, it may be more difficult.

Next month, Part 2 of this blog will explore how you can seek out and secure your investments.