Finding the upside: Fundraising amid the Covid-19 outbreak - what you need to know

This is part of Antler's "Finding the Upside" series, aimed at supporting and empowering the entrepreneurial community during the Covid-19 pandemic.

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As the impact of the novel coronavirus continues to be realised, Antler is doing its best to provide the tech startup community with information to help chart the path to recovery, and support the ecosystem in the face of the pandemic.

With recent talk about an anticipated slowdown in venture capital investment, here's our perspective on fundraising in uncertain times.

Now can still be a good time to raise money as a startup.

Firstly, as our CEO Magnus Grimeland pointed out in an earlier article in this series - “Over 2018 and 2019, VCs raised a record amount ($100bn raised).”

Only a portion of this capital has since been deployed, so right now there's a large amount of funds available and ready to be invested. Essentially, VCs are still investing and deals are taking place remotely.In fact, the Australian Financial Review last week reported that the amount invested in the March quarter was almost as high as last year, showing that a showdown due to COVID-19 has yet to materialise.

Anthony Millet, Partner of Antler in Australia, recently gave a talk to our Australian portfolio companies titled: "A founder's seed fundraising kit." In it, he discussed the startup fundraising fundamentals, as well as what founders should be considering with the added complexity of the Covid-19 outbreak. Here are some of the highlights from that presentation.

The impact of Covid-19

"The current situation is perhaps not as bad as it seems in the short term, as many VCs have significant cash in the bank. In fact, there is more dry powder than ever before," says Millet. "And going into 2020, we're extremely excited about the potential for great businesses to get funding.

"As a result of Covid-19, what we are hearing from the Australian VCs, and also those in the US, is they expect to spend more time focusing on their current portfolio... rather than looking at new opportunities.

"Despite that, VCs are still looking at early stage deals, as they are often investing for the long haul, but may be slower to make a decision and execute."

So, when should I raise and how much?

"Based on previous 'Black Swan' events, we think that raising money this year will still be easier than next year," says Millet.

"Following the Great Financial Crisis (GFC), the VCs that were sitting on a bit of cash continued to fund businesses for 12 months from the start of the GFC. But then there was a dry patch and lack of availability of funds for about 12 months after that."

Millet said teams who are currently fundraising should be thinking about what it is they need for an 18-24 month runway, and try to close the deal as soon as possible.

"In light of Covid-19, we would suggest creating two paths of how much to raise," says Millet.

"1. What you would ideally like, and would have been aiming for in more normal times to give you 18 months of runway, and 2. What a scaled back minimal path looks like, again for 18 months cash runway (amount you need to support the operations of the business).

"Your goal should be to raise as much money as needed to get to your next 'fundable' milestone, which in the pre-seed stage would under normal circumstances be 6 to 12 months later (18 months for subsequent rounds)," says Millet.

"One way to look at the optimal amount to raise in your first round is to decide how many months of operation you want to fund. Understand your monthly cash burn and map out your company's important timelines and the cash you will realistically require to achieve them."

He added: "No matter what, the best companies and most exciting opportunities should always get funded."

Next steps

With this in mind, right now founders should be thinking about defining your fundraising goals and timing, map out your target investors and fundraising materials, and start organising investor intros and pitches.

Remember: "Globally, companies and decision-makers are making deals and do business over video conferencing, this is a great opportunity to close deals and reach people who may now have more time on their hands because they are at home," says Grimeland.

"It is widely thought among the VCs in Australia - and I'm sure this sentiment is the same across the world - that the businesses that survive this crisis will learn to be incredibly resourceful, incredibly frugal, have great company culture and will thrive on the other side.

"It's a tougher environment to operate in, but I think if you can make it through this, your chances of success are very high."

If you have a startup idea, or are keen to launch your entrepreneurial journey, but need access to funding, or network and expertise, Antler is currently recruiting, apply here.

Alternatively, if your startup is working to solve a problem born from the Covid-19 outbreak, you can apply for funding as part of Antler's 'Covid-19 Call' initiative. We've committed US$500K to invest in up to five teams from anywhere in the world. Find out more information, and how to apply here.

This article was written by Sarah Kimmorley, Director of Communications at Antler, Australia and New Zealand, and is based off a presentation by Antler Partner Anthony Millet titled "A founder's seed fundraising kit."