The Covid-19 pandemic has had a tremendous economic impact not just on big corporations but start-ups as well. While it might be challenging to raise funds during these harsh economic times, it doesn’t mean no investors are willing to put their money where they believe the future is promising.
For your start-up, below are a few strategies you can use to raise funds during this pandemic:
Extend Your Funding Timeline
At the moment, most individuals and businesses are thinking about cutting down their expenditure; approaching an investor for outright funding might not get you anywhere. Most investors prefer to focus on what their portfolios currently hold, not what they can add during an economic downturn.
Instead, have an extended runway period of 6 months or more. Initially, start-ups would ensure to have operating funds of 12 months to 18 months in the bank when closing on another round of financing; with the environment, it is best to add an extra six months or so in the projections and have about 18 to 24 months of operating capital catered to.
Many funding rounds will take longer to close in these conditions. You can use a bootstrapping strategy to ensure your start-up stays afloat as you await the funding round to end. Bootstrapping involves using the business’s savings and revenue from sales to meet its expenses and lowering the costs as much as possible. You can cut costs by freezing your start-up’s hiring process or make extra income by selling or leasing idle assets.
Depending on your start-up’s size and position, look for a strategy that will work and allow you to increase the runway until funding is available.
Are you able to tap into the government schemes that support start-ups in your region? The government might not be handing out checks, but it might have incentives that make operating during the pandemic more favorable.
Some governments have lowered the tax rates for start-ups in their regions, delayed tax payments periods, or extra reliefs geared towards small businesses support like granting grace period for loan repayments.
Fund from Your Loved Ones
Start-ups rely a lot on funds from their founder’s initial investments and funding from their family and friends. The issue with this funding method is the tendency for founders to lose close relationships if they fail. However, this acts as motivation for some founders, not only to preserve the relationships but also to show they can achieve their goals.
The way around this is working with a Simple Agreement for Future Equity (SAFE), which helps you document the investor’s future right in the company’s equity. The agreement, however, does not provide the price per share for the investment.
Request for Lower Funding Amounts
Not every start-up manages to raise funds, even when the economy is booming. Asking more capital during a pandemic might lead to investors shunning your start-up funding. In this case, you can always ask for a lower funding amount – just enough to cover the company’s operations. It would be best if you had up to date calculations of how much capital your start-up needs to stay afloat during the pandemic while still working on keeping the costs as low as possible. As many economies estimate recoveries in the coming year or so, you are in a position to time your funding rounds with these recoveries.
Embrace Online Meetings
Thanks to Zoom, scheduling meetings during the pandemic is easier than the pre-pandemic days. It took days or even months to plan travel itineraries for investors and start-up founders. You can easily do your due diligence, get to know the investors, and schedule funding meetings from wherever they are, even in different cities or countries.
This has helped start-ups’ funding during this period ease and speeds up the funding process.
Explore Other Funding Sources
Venture Capitals are not the only funding solutions for your start-up. There has been an increase in the number of non-VC investors ready and willing to fund start-ups that align with their goals and objectives. Other options to consider are business accelerators and incubators. Successful businesses like Airbnb, Stripe, Dropbox, and Reddit received funding for a business incubator company, Y Combinator.
As countries try out the first rounds of the Covid-19 vaccine, there is a blink of hope in the future. A vaccine and possible cure could signal a return to the “normal life” with fewer restrictions, helping economies open up faster for recovery. Promising as this sounds, start-ups need to think of the now and raise funds to ensure the ongoing conditions do not derail their progress. Other funding strategies like using business incubators, funding from friends and family, and government support might help a start-up raise funds during this pandemic.