{"id":7316,"date":"2020-07-07T13:10:09","date_gmt":"2020-07-07T13:10:09","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/?p=7316"},"modified":"2021-03-05T06:54:48","modified_gmt":"2021-03-05T06:54:48","slug":"fundraising-covid-19","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/fundraising-covid-19\/","title":{"rendered":"How to fundraise in the time of COVID-19"},"content":{"rendered":"

With founders and investors alike fleeing conference rooms, coffee shops, and coworking spaces due to the COVID-19 pandemic, fundraising is now largely taking place via video conferencing\u2014a virtual experience that\u2019s new for most people on both sides of the equation. The long-term impact of this shift to online fundraising remains to be seen, but one thing is certain: founders are scrambling to adapt to the \u201cnew normal.\u201d<\/span><\/p>\n

Here\u2019s what to anticipate when it comes to online fundraising so you can adapt quickly and keep your business growing.<\/span><\/p>\n

Don\u2019t be afraid of a down round<\/b><\/h2>\n

The current economic climate increases the chance of your business having to raise a down round\u2014a term that describes raising money at a valuation that\u2019s less than your previous round. Although a down round typically casts doubt on the stability of your business, the broader economic slowdown ameliorates how much a down round should impact investor trust.\u00a0<\/span><\/p>\n

By taking care of employees and getting creative with financing, you may be able to successfully <\/span>navigate a down round<\/span><\/a> and minimize the long-term impact on your business.\u00a0<\/span><\/p>\n

Prepare for risk-averse investors…<\/b><\/h2>\n

Investors once keen to ink a large volume of deals are now reevaluating their portfolios based on how the pandemic impacts companies. Some businesses, such as healthcare startups, are even more crucial in a post-pandemic world. Some associated with travel or personal care are negatively impacted, and still others are neutral. How investors move forward will depend on the percent of their portfolio companies that belongs in each category. Though this reprioritization will impact all founders, first-time founders are especially likely to face increased scrutiny. Investors looking to minimize risk may prioritize founders who are already seasoned operators.<\/span><\/p>\n

The best way to win over risk-averse investors is to focus on how you and your business are planning to <\/span>weather the storm<\/span><\/a>. Highlight how your background makes you an ideal leader during uncertain times. Anticipate investor concerns about changing customer behavior in your field. Show them that you\u2019re ready for the challenges ahead.<\/span><\/p>\n

…But anticipate a renewed focus on diverse founders<\/b><\/h2>\n

Many expected this era of virtual fundraising to cause biases to flare, furthering the inequality that has plagued venture capital for decades. After all, a female founder pitching her company faces an even bigger risk of <\/span>maternal bias<\/span><\/a> if her toddler decides to make a cameo in her video chat. But this is a summer of social change\u2014giving rise to hopes that we might see greater equity in VC funding sooner than we thought.\u00a0<\/span><\/p>\n

The protests that have erupted across the U.S. have forced many VCs to look in the mirror and see how they have held up traditional power structures. Only 1% of venture-backed founders are Black, and just 1.8% are Latinx. Women have also long lagged behind men in <\/span>raising venture capital for their startups<\/span><\/a>, particularly as first-time founders. The overall percentage of VC dollars received by female funders has been stagnant for a decade, at about 2.5%.\u00a0<\/span><\/p>\n

However, a number of venture capital firms have recently stepped up to <\/span>address<\/span><\/a> their lack of diversity directly, pledging to support more Black founders and women founders from underrepresented communities. Though these measures won\u2019t solve the gaping gender and minority fundraising gaps overnight, they are a positive sign that women and minority founders may find more opportunities to get their ideas in front of investors who want to architect systemic social change.<\/span><\/p>\n

Stick to the basics<\/b><\/h2>\n

Founders report that virtual VC chats are often painfully short. A three-to-four-minute VC pitch is a challenge.<\/span><\/p>\n

Your best bet for making sure those few minutes shine? Practice, practice, practice. Breanne Acio, the founder and CEO of Sekr, practiced and delivered her pitch for Techstars Virtual Demo Day from her camper van. Her advice: \u201cIt takes weeks of practice and iterating to get it right.\u201d\u00a0<\/span><\/p>\n

You can\u2019t afford to stumble through your introduction when you only have 180 seconds on the clock. Work on your delivery until it is crisp and polished to give your ideas a chance to shine.\u00a0<\/span><\/p>\n

Move quickly\u2014and carefully<\/b><\/h2>\n

In uncertain times, it can be tempting to move fast and close quickly. However, some investors use market volatility as a cover for sneaking non-standard<\/span> terms<\/span><\/a> into your agreement. Make sure you balance a need for speed with a critical eye. Stay vigilant against unfavorable terms, including:<\/span><\/p>\n