How are VC’s responding to the current COVID-19 epidemic?
By: Mandy Nyarko
Tags: Investors, Covid 19 Crisis, Founders, Startup, Venture Capital

Over the past few weeks, the anxiety and concerns amongst all types of founders from early to late stage has been overwhelming. All over the world there have been zoom calls and webinars focusing on how investors are responding to the epidemic, and what founders can do to survive during these times. I have joined webinars that focus on the UAE, Africa and UK startup market, so I wanted to share some of my top take aways from what I’ve learnt during this time about how VC’s are responding:

Supporting portfolio companies -VCs are looking closely at which companies are potentially going to run out of cash, and what actions can companies take to stay afloat. Where they have winners they are doubling down on their investments because supporting their current customers has to be their main priority. Sounding board- Founders are reaching out for more mental support, some are desperate due to difficult cash flow issues so they want someone to speak to. Most of them know what to do, but they need a sounding board to bounce ideas off. Check in with any founders you may know! Valuation- your valuation will be impacted because ultimately it’s based on your future success, given the uncertainty of these times its difficult to put a value on businesses. VC’s advise founders to be smart about how they price themselves and focus on staying alive and coming back stronger in future rounds. Sourcing new deals - Some funds have time to look for new opportunities but not looking for shiny things, they’re looking for clear winners. Currently it’s like a 70/30 split of their time. Critical thinking- How do you create optionality for yourself? What does your business look like? What is the narrative and story you can tell to get out of this? Can you get into new segments and pivot the product? These are the main things they are asking founders. Grow at all cost and burn mentality is ignored now, it’s about efficient growth and retaining the best talent. Bridging Finance- If you go for a convertible note option, negotiate between 20–30%, with 30% cap. Nothing more! Anything more would be deemed as greedy! Try to get at least 2 years on that deal to ensure you can pay it back as the market will need to catch up and stabilise. An investor with good intentions will not be picking away at interest rates, because that shouldn’t be the motivation to invest in the company. Cash flow- How do you extend your runway? Cut cost? — you need to be efficient, Debt options perhaps? If you can get through mid 2021 then there is interest to invest and reinvest. VCs are looking at these businesses and advising portfolio companies to try and get creative on how they extend their runway. Ways to reduce burn- Some companies are deferring salaries, recognising bonus plans are now void, asking customers to pre pay and in return get a discount on price, scrutinise every line item in Opex. Defer or avoid rent payments, renegotiate with landlords. Get creative on every line item. Post Covid-19 - The team will continue to be the most important thing investors will be looking at. This is a good time to get to know potential investors. The level of leadership required is important across all sectors now, and startup founders are not exempt! How you make decisions during these times will predict a lot. It lets them see how you think and lead. Starting a company- The general consensus was that this is a great time to start a company at seed stage. You might grow less fast but you will still grow… Your end game will be the same.

Bonus tip: Retain top talent!

So if you are a founder struggling with accessing finance, please do connect with a startup and investor ecosystems, if not for investment, at least you will gain some insight and support on how you navigate your way through these uncertain times. You are not alone! Stay hopeful!