How to raise capital during a crisis

Alarm bells are ringing. We’re heading for another financial crisis. Geopolitical tensions and fluctuating markets have led to a soaring cost of living in Ireland, a threat of recession, and a slowdown in investment. Early-stage investors have pivoted from the bull run of 2020 and 2021 to a bearish approach to funding in 2022.  

In May, the  Irish Venture Capital Association VenturePulse survey in association with William Fry reported that in Ireland, deals under €10m took a big hit in the first three months of 2022. Deals in the €5m to €10m range fell in value by more than half, while those in the €1m to €5m range also halved from €70.3m last year to €34.5m in Q1 2022. The value of deals below €1m dropped by 31% to €8.9m. Seed funding was also hit, falling nearly 40% to €22.3m from €36.5m last year.

It is still possible to raise capital during a crisis. That’s not to say every startup will sail through a downturn. But there are a few things to bear in mind when looking to raise funds whilst the economy is in turmoil. 

A success story

Few people know that Netflix was founded during a recession back in 1997. Seven years before Blockbuster peaked in 2004. Originally, Netflix shipped out DVDs in the mail. It should have been a flop.

But today, only one of the 9,000 global Blockbuster stores remains, like a memorial to the much-loved VCR. In contrast, Netflix gained 37 million subscribers as global lockdowns came into place, and their streaming service took the market by storm.

While subscriptions to the platform are slowing down (a story for another day), Netflix is living proof that global crises are a stimulus, and not a stopping point, for innovation.

So how can startups raise capital during a crisis and increase their chances of becoming the next Netflix?

It’s true what they say about timing

Some startup founders were dealt cruel cards during the pandemic. Others enjoyed breath-taking wins. Where travel platforms were grounded, delivery services soared.

It’s part of the reason why investor ‘nos’ should be taken with a pinch of salt. Investors say no to great startups for several reasons - maybe their specialism is MedTech, but you’re pitching fintech. Perhaps they want to focus on products instead of service brands.

And then, sometimes, a pandemic happens, and your travel platform is the furthest thing from investors’ minds, even if you’re set to be the next Airbnb.

Until we learn how to predict global crises with indisputable accuracy, it’s very hard to mitigate the risk of bad timing.

But here’s the good news: startup founders are used to mitigating risk. If you’re a founder, it’s probably something you do every day without even thinking about it.

Figure out what resilience looks like in your industry, and then highlight how you’re building it into your business model when speaking with investors. Assess whether your business is actually crisis-proof or whether you need to wait a little while before pitching it to investors.

Pay attention to current events and market trends and use them to guide how and who you approach because timing is critical but not as important as the next piece of advice.

Generate leads like there’s no tomorrow

Those investor ‘nos’ we mentioned above, you’re going to hear a lot of them. So many that you’ll start to think a ‘yes’ won’t ever happen. Persist, persist, persist!

Your approach to lead generation should feel like a sales role. Unless you continuously invest in new connections, the well will run dry. Be on the lookout for relationships all the time.

It’s also important to remember that investors have biases. Some of them made their money in MedTech, others FinTech. Maybe they’re not looking for an AgriTech platform to add to their portfolio. Again, this doesn’t mean your idea is naff.

At the same time, you might connect with an investor who loves AgriTech platforms like yours. And then you’ll get an investor and an experienced guide on your side.

A one-and-done approach won’t serve you in the long run. Don’t get too comfortable with a warm lead and forget to nurture other relationships.

Instead, you should build a steady and reliable network of connections - not just for funding but for advice and guidance. In these situations, second-time founders or serial entrepreneurs can provide just as much value as a cash injection.

Investors aren’t always experts

Don’t fall for the stereotype. VCs aren’t always experts in your field. They might have a wider strategic understanding and decent industry awareness, but there’s a good chance your niche is new to them.

That’s why everyone tells you communication is key to a good pitch. I’d go one step further and say it’s not so much communication as it is storytelling. That’s what helps you land an investment.

Not only does storytelling help you harness the power of your team and persuade customers that your product or service is top. It can convince investors outside of your field that they should start investing in it.

It’s all too easy to assume a level of knowledge in the boardroom, but make sure you also give a thorough explanation of your business model. Don’t alienate curious investors because you communicate in niche industry jargon.

Some investors will stick to what they know while global markets are in flux. The best thing you can do to encourage them to branch out is to create a clear and understandable pitch.

Claim the peaks, endure the troughs

The pandemic wasn’t a crisis for start-up funding - far from it. Global venture capital doubled in 2021 compared to 2020. And most of that capital was invested in the tech industry.

It’s clear to see why. Never before has the world relied so heavily on technology to keep things running. Healthcare systems embraced remote monitoring platforms when they couldn’t see patients face to face. Businesses moved in-person meetings to Zoom, Teams, and Meet. At times, we all took a step away from the overwhelming real world to tune into our favourite Netflix show.

Tech funding is peaking, and you’d do well to make the most of it. If you can position your startup in a way that speaks to the challenges of tomorrow, and not just today, investors won’t ignore it.

If you want to raise capital during a crisis, you need to be proactive, patient, and thick-skinned. But isn’t that what all great start-up founders should be anyway?