Fund Raise for Startups in COVID19 Era.

So, we had a partner call discussing our 2020 plans in details. I am talking about Sagestreet ( http://sagestreet.in ), our early venture advisory and fund management business. It was an interesting call.

a)Venture Capital:

Venture Capitalists are keeping the deal flow warm. Some of the webminars and commentaries led to the point that new funding opportunities would be heard, but not acted upon, unless, its an outstanding exception. They are wanting to conserve cash for existing portfolio companies and advising them to optimize, stay afloat till things get back on track. Some of the term sheets have been pushed for later dates, with no certain outlook. So you will see the entry barrier going up, and existing deals thought through again. We will also see co-investments and short investments happening to test businesses more. We are also seeing some deals being revised in terms of valuation to factor in uncertainties.

b) Angels:

Couple of angels who had committed have stepped back during early April itself. And we had another instance of an Angel Network committing but asking us to find a co-investor. And the investment was going to staggered and short. That is smaller, intermediate milestones and triggers are coming in. We will see the dry powder being carefully deployed, and the free flow of cash to startups is a thing of the past.

c) Working Capital Loans:

While the Angels deciding to fly low and VCs cutting down on their adventure, the door for short term funding — especially for working capital, with cash flow visibility is opening up. Hitherto, if you are a startup and you have to meet steady or growing demand, then this is the time to borrow — interesting structures are emerging. Starting from SIDBI to our own investor network, we are currently structuring couple of deals.

d) Wait and watch:

Regarding our own strategy of raising capital, we had decided to wait and watch, as there are too many moving parts. There are lot of forward looking commentaries and articles from Venture Capitalists, Analysts and Stakeholders on how each industry would shape up. Unless you are a startup born in the COVID era, you have to remain calm and cash-careful, and wait and watch. Fund raise in the post COVID era is a punter’s game today, unless again, but one should keep trying — as they say ‘ luck favors the brave’.

~Ashok Subramanian