The perfect time for fundraising

Is it the perfect time for fundraising?

The Covid19 epidemic has changed the landscape of fundraising and investments, probably for the next 5-10 years.

The main reason being that the masks are now off, startups and funds require funding and at lower valuations than before.

What has changed though?

Covid19 had made VC and PE funds a lot more prudent, calculated and conservative.

They’d like to see more traction before they say “yes”.

It wasn’t always so, especially since the blockchain bubble of the past 3 years.

Is this worth the (white) paper it is printed on?

One of the key reasons for funds rescinding their offerings is the fact that prospectuses make little to no sense at all.

They promise this token to achieve 5X its value within 9 months of being in the market.

Sometimes, it’s a PPM that offers a lot of “goodies” to VC or PE funds in the form of equity, but with hardly any stake (money in) from the entrepreneurs.

Pragmatically speaking, it makes sense for investors to say “either you put something in or we’re walking”.

The fact is that entrepreneurs have been raising ludicrous amounts of money, with nothing to show for and investors have had enough.

What does the process look like on both ends though?

Same ole’ same ole’?

The breakdown is pretty simple:

  1. This is our enterprise, it does this (the pitch)
  2. This is our team, these are their strengths (the team)
  3. These are the projected numbers we’d see at X time (the financials)
  4. This is how much we’d need and at what terms (the ask)

This is from the entrepreneur point of view, where investor kits, pitch decks, the PPMs, the whole nine yards – are distilled and presented to a fund/angel, etc.

And then there is the investor point of view.

The investment committee is usually constructed by:

  1. A principal in charge of saying “yes” or “pass”
  2. One of the general partners who are sceptical
  3. One of the directors of the advisory board who observes the other two

This committee then proceeds to deliberate and decide whether or not they want to invest in the team.

When there’s a match (or a mismatch), is when entrepreneurs can actually move forward with a deal or look for another one.

They said “pass”

One of the words entrepreneurs dread of hearing is “pass”.

There’s usually a euphemism phrase in the form of:

“Thanks for the input, but this is too early/late stage for us”

“We have already filled up the cohort for this year”

“It doesn’t match our DNA”

And a multitude of others, but the simple answer is: “you didn’t impress us enough.”

They said “yes”

Sometimes, this happens as well – an investor(s) said yes.

The investor(s) loved the idea, he/she wants to take the reins too and lead the team forward.

Plans are in motion to start hiring people and expand.

A term sheet is presented to the entrepreneurs to be signed at a given date.

It seems the sky is blue and entrepreneurs can now break out the champagne.

But before they do, a “term sheet” is not “yes” until the money is in the bank.

Before they rush out of the conference room and tweeting about their funding round, they need to ensure it has actually happened.

Nothing worse than sending TechCrunch an email from the PR firm, only to find out the deal didn’t fall through.

Reputation is the name of the game here and the first one to lose it, would have a hard time securing a funding round (if any).

Is it the perfect time for fundraising?

No.

It is not the perfect time for fundraising, at least not anymore.

The perfect time has already elapsed, as they are busy saving what they could save.

But the time is optimal for fundraising, as investors are looking to cut their loses.

Yes, some have rescinded their offerings, but others are looking to secure their portfolio for the next couple of years.

They are finally back at their offices, after two months of staying indoors.

What’s left now is to try and ensure a term sheet before they can escape on an aeroplane, once borders are opened again.

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