Fundraising In A Pandemic: Why A Fresh Strategy Is Imperative For Startups

By Alton McDowell

Many startups went into 2020 with ambitious fundraising plans. Then, COVID-19 hit. Fast-forward several months and the amount of investment in startup funding in 2020 is expected to decrease by about $28 billion globally. What’s promising is that, with the right fundraising strategy, marketplace shake-ups can create new opportunities for early-stage businesses.

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Startups will benefit from closely monitoring market trends for a better understanding of the environment. Deals are happening, but it’s about knowing where to look. Read on for takeaways that founders can leverage to reshape their fundraising approach in the current landscape.

Funding prospects vary by stage

Venture capitalists are still looking at early-stage deals, and they’re potentially looking at a partnership of seven or more years. However, these deals may be slower to execute, so founders should be prepared for a more competitive market.

Today’s timeline for funding Series A has extended to about six to nine months, though this timeline is shorter for seed-stage companies given the smaller scale of their funding rounds.

Making a multiyear commitment over a Zoom call may seem like an uphill battle, but we have found that startups have had the advantage of being able to secure more meetings with investors during the pandemic because people are more accessible—they are more often home rather than on a flight traveling. Given the nature of virtual meetings, it is important to tailor presentation and meeting materials to be more visual in nature and focus on developing rapport and authentic relationships with investors online.

Growth-stage startups are in a less challenging position when it comes to securing VC funding. VCs have already been following many of these startups’ progress for many years and are more comfortable making an investment during volatile times, having likely worked on deals with them pre-COVID. A number of VCs are increasingly holding the majority of their capital back for late-stage investments, so they can double down on current portfolio winners—but this doesn’t mean that earlier stage investments are off the table for promising companies.

Consider all options

While the current business landscape has been compared to past economic downturns, the capital environment is dramatically different due to the unique nature of the global pandemic. In fact, there is more liquidity in the market than prior to COVID-19. Funding options are still out there for startups—from angel investors to family offices, private equity to traditional credit and loans. Focus on finding the right fit with the company’s financial runway, vertical, and current growth stage. We’ve seen an increase in family offices investing in the innovation economy sector—particularly in areas like life sciences that have seen renewed interest due to COVID-19.

No matter the industry or funding type, securing funding will continue to be competitive throughout the pandemic. Demonstrating timely differentiators and showcasing a flexible strategy—designed to withstand current and future volatility—will be key to accessing capital.

Be flexible and have eyes on the prize

The impacts of COVID-19 will continue to have ripple effects for years, making it important for founders to remain nimble. According to JPMorgan Chase’s recent Business Leaders Outlook Pulse Survey, more than half of business leaders have shifted or plan to shift their operating models to be more online, in response to pandemic-related closures and shifting consumer demands. Startups that implement adaptable strategies will continue to see the most success.

Setting realistic targets is also essential to riding out the storm. In general, startups should revise their projections to plan for a reduction of 25 percent to 50 percent in top line growth. This number varies based on a startup’s industry and growth to-date during the pandemic, but creating goals based on the current environment will benefit the business in the long-term.

While 2020 disrupted many startups’ growth plans, there is still a wealth of opportunity on the horizon. By continuing to remain flexible and respond to changing market demands, startups can use this unique moment to take steps to successfully position themselves for years to come.

Written by Alton McDowell, co-head of technology and disruptive commerce, middle market banking and  specialized industries at J.P. Morgan.

Illustration: Li-Anne Dias