This post is a recap of a session part of the CAIF Collective Learning Series in partnership with Sankalp Dialogues. Watch the session on our YouTube channel and sign up for future learning sessions at this link.
Today we’re used to thinking of companies like Whatsapp, Instagram and Uber as “unicorns” that have disrupted the fundamental ways in which we interact with the world. What they all have in common, apart from this, is the fact they all launched soon after the economic recession of 2008, considered the most severe global recession since The Great Depression of 1929.
Crisis however has always spurred innovation, as the flip side of crisis is an opportunity for innovation. Beginning with frugal innovations as immediate responses, to disruptive innovations filling wide opportunity gaps, historically, periods of crisis have always been followed by periods of great innovation.
As we navigate the ongoing COVID-19 crisis, we have much to learn from past experiences of responding to difficult times. 2020 is now being called “the year of survival”, for individuals, enterprises and investors. As entrepreneurs navigate the simultaneous challenge of running day to day operations while pivoting and adapting broader business models, fundraising is now, more than ever, the key to post-crisis survival.
Circular Apparel Innovation Factory (CAIF), in partnership with Sankalp Dialogues, has launched the CAIF Collective Learning Series to help entrepreneurs navigate issues such as “Early-stage fundraising in a post-COVID world”, the session was designed to help young entrepreneurs understand the impact of the COVID crisis on the fundraising landscape and how to adapt their approach to fundraising in a world that has changed suddenly and significantly.
Moderated by Divya Gupta, Investment Manager at Aavishkaar Capital with a panel of experts in early-stage investing — Sushant Bhatia, Regional Investment Manager at Caspian Debt; Shashwat Rai, Senior Investment Manager at Aavishkaar Capital; Utkarsh Sinha, MD at Bexley Advisors; and Samik Rakshit, at Pi Ventures.
What should be the immediate response of the entrepreneur, while survival takes priority?
- Communicate effectively with the team, you are the best guide for the company
- Maintain transparency with investors on the impact numbers & strategies to overcome it
- Be pessimistic in future planning given the amount of uncertainty
- Be tactful with resources, as they determine your runway
- Focus on a lean team and keep a check on the expenses
It is crucial to direct more mental bandwidth to the points listed above and not make mistakes. As entrepreneurs will need to make quick and bold decisions on contrary investments might become scarce.
Are you planning to fundraise? Here are a few things that investors are looking for:
- Time that is required for fundraising might increase, so start reaching out sooner and be prepared for the delays in the process
- Do your homework and set a context when reaching out to new investors, having an ambassador is a plus.
- Involve the leadership team in the conversations with investors, it helps fabricate trust especially in the seed round.
- Due diligence involves a mix of online audits and physical verification, focus on closing all the requirements, share regular updates with investors that gives them a sense of progress and to stay in the priority list of investors.
Investors are looking at a deeper level of engagement with their portfolio companies given the scenario. And there is a significant shift in their mental bandwidth to value protection for existing investors and hence new investments have been facing a lag. But as the investors have already started to look at new investments, you can expect changes in their approach.
How are investors getting ready to invest in a post-COVID era?
- The ticket size might be smaller as the threshold for investment has increased, though seed funding will get less affected compared to series A & B given that the ticket size is already small.
- Unit economics will be back in fashion, sustainability and profitability would be very important. Well priced products/services at seed stage might win over top line growth for series B & C.
- A shift in approach is expected from vertical to horizontal and some sectors i.e. telehealth, and zero-contact start-ups will become a priority for investors.
- As the threshold for making an investment has increased, valuations are bound to take a short term hit. So it might help entrepreneurs to be flexible about valuation at an early stage. Although Softbank’s money squeezing might also be a reason for the decline in valuations.
What are the positive impacts that this crisis can bring?
- Reduction in capital vandalism, that will give an opportunity for small businesses to compete with the bigger ones.
- It is a push for the individuals who are at the edge of making this shift to entrepreneurship.
If you are an entrepreneur currently or you aspire to be one in the near future, the tips above will help you make a better decision or prepare you for the journey ahead.
Watch the whole session here or on our YouTube channel:
