Raising Capital In A Turbulent Market

Thoughts on what startup founders should do as the coronavirus spreads and the stock market tanks

Let's not sugarcoat things -- it's a little scary out there right now. My kids are being (sort of) home-schooled, normal people are stockpiling Top Ramen, and 2.6 billion people around the world are "sheltering in place."

The funding scene is equally crazy: stocks are down 20%, Sequoia released its "black swan" warning, and the negative VC chatter on Twitter is incessant.

And, it will probably get worse before it gets better.

But the most successful founders are often "contrarian + right" and I think the next few months could actually present an amazing opportunity for entrepreneurs.  


WHY THIS MARKET COULD BE GOOD FOR YOU

+VCs are sitting on a RECORD amount of capital. According to Pitchbook, investors have over $189 Billion in "dry powder" that they must deploy in the next few years or give it back (and no one wants to gives it back).

+VCs have learned from 2008. During the last downturn, 9k investors still did over 28k deals. Several funds such as Lowercase Capital continued to invest steadily throughout the recession and as a result saw massive outsized returns. Fewer VCs will sit on the sidelines this time.

+New angels are entering the game. HNW investors are tired of choosing between the wild gyrations in the stock market and almost-zero interest rates in the debt markets. So where are they hunting for ROI? Private markets, meaning they are increasingly investing in startups.

+Downturns spawn amazing companies. Talent becomes more available, weaker companies exit the market, and all the "wantrepreneurs" go home. As Sequoia points out, Airbnb, Square, and Stripe were all founded in the midst of the last crisis.

Bottom line: the next several months could be a once-in-a-decade opportunity to raise capital, gain market share and come out owning your vertical.


WHAT YOU NEED TO DO, NOW

This is not a time to be passive; instead, smart founders will "lean in" and take action while others watch and wait. Here is what you should do now and over the next few months:

+Increase the size of your funnel. While I believe investors will continue to write checks, many will be cautious and / or move slower. Compensate by treating it as a numbers game, and dial up your numbers by 50% --  e.g. if you're raising Seed and currently have 200 investors in your pipeline, ratchet it to 300 (see tips for mining our investor DB).

+Pre-market your deal. If you're not currently raising $ but plan to do so later this year, start "warming up" investors NOW by sending a Monthly Update 3-6 months before you kick off your round (here is an email template to ask permission to add VCs to your distribution list).

+Build and engage an advisory board. Fundraising runs on warm intros. Funded founders spend significant time building their network -- both formal advisors and founder peers -- before they need it (see "Fundraising as a Team Sport").

+Hone your pitch deck (we can help :). As the sheer number of startups has increased, VC attention spans have declined. Your deck needs to crush it within the first 30 seconds. Download our Pitch Deck Guide or book a free review / tune up (paid customers only).

Carpe Diem!