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Fundraising Advice in 2020 — Part One

2020's volatile start in Q1 has left many new companies wondering how they should carry on. In this post, we've reached out to some of the top VC's in Europe to get their insights for startups looking for fundraising.

Jake

Stott

May 18, 2020

So far, 2020 hasn’t been the year that anyone expected. The start of a new decade, a decade where the widespread adoption of many nascent technologies is expected to transform the way we live, work, transact, travel, heal and overall, experience the world around us.

After only three months of this decade, we’ve seen the world turned on its head — more than half the world’s population on lockdown, restricted in their daily activities, many unable to work and the global economy leaning towards a potentially major recession. Almost everyone is feeling the immediate consequences in one way or another, but nobody knows for sure how this will all play out; it is simply unprecedented in world history.

For companies, this is a critical time. Is your business model built for a work-from-home, digital society? And even if it is, is this where people want to spend their money right now?

For tech startups, the problem is all the more acute as most companies build their businesses based on a well-defined funding trajectory from Seed to Series C. Any major bumps in the road can be fatal, as a company tries to go from product-market fit through to profitability.

If you are a startup who is looking to raise your next round of funding, or you have recently raised money, then this post is for you. We asked some of the top venture firms in the European blockchain space to share their advice for portfolio companies and startups within their network.

We hope that every startup can take something away from this post to help their business thrive and survive in this 2020 we find ourselves in.

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Now I’ll hand it over to our group of venture investors. First, we asked:

What is your advice to any blockchain startup looking to fundraise in the coming months?

Outlier VenturesLawrence Lundy-Bryan — Partner

Stretch out existing funds for a 12–18 month runway if possible by cutting costs to a minimum. If you do have to go and raise more money, then raise enough money for an 18 months runway, and plan to be profitable in that period. Focus on winning customers and solving their problems quickly. Raising money will be easier with paying customers and month over month growth. I would also say that the appetite for investing in blockchain projects has diminished over the past year, and so you need to appeal to traditional tech investors. To raise money make sure the proposition is easily understandable to people outside of the industry.

IOSG VCJasmine Zhang — Partner

Plan for a 12-month, or even 18-month, budget if you prefer to be a bit more conservative. We cannot foresee how long the crisis is going to last, so I would recommend founders should balance how much equity you plan to give up and how much budget you need to stay alive.

Maven 11Balder Bomans — CIO

First of all, I would like to mention that it is more than ever key to stay determined. Yes, these are challenging times, making the (near) future more uncertain than ever, but staying determined is key for any startup.

Fundraising will understandably be a lot more challenging. A couple of takeaways which could help:

  • Do not be afraid to ask for help among (existing) investors.
  • Be creative on the fundraising, maybe even lower your previous valuation. Or work with other instruments, which might be more favourable for investors right now, but can give you that 6–12 month funding.
  • There are various very extensive government stimulus programs, tap into them, as they can help you significantly stretch your runway.
  • Needless to say, a healthy focus on costs will help during these times.

Signature Ventures — Dr Juri Stricker, Tech Lead/Principal and Manuel Trojovsky, Principal

Adjust your business model. The Coronavirus is actually multiple crises in one. Not only does this mean that the current market is different than the one you have planned for, but it also might accelerate certain developments in a way that will substantially change the post-crisis market. Adjusting your business model and the go-to-market strategy accordingly is key to being prepared.

Expect less funding. When market predictions are tough, people tend to postpone financial decisions or make them conservatively. The consequence is less money available to fund risky ideas and a longer time horizon to fundraise. In our experience, the size of a funding round might decrease by 30%-50%. The time horizon itself mainly depends on the perception of the crisis and the overall clarity of the response strategy. If the impact of the crisis is perceived as something short-term, investors might just postpone all financial decisions to the post-crisis period. If, however, the impact is long-term but the solution can be planned with higher certainty (the easing of the shutdown, potential breakthroughs in vaccine research), decisions might be made earlier despite the problematic situation.

Strengthen the core team. The crisis may offer new opportunities. As the money dries up and unemployment rises, so do opportunities increase to hire good people for less money. This is the time to identify your unique characteristics and establish a stable core team with sound financials.

Look out for funds at the start of their investment period. Funds that have already deployed bigger chunks of their capital or have established a substantial portfolio will be busy supporting their current startups. It is less likely to receive funding from them. Instead, look out for funds early in their investment period who are not burdened too much with their current portfolio. Additionally, angel investors can support you with a bridge round, in particular, if you are willing and able to lower the valuation.

The Garage ParisTierno Tall — Blockchain Investments

Sexy startups will still find financing, especially since VCs just can’t cease fulfilling their mission as investors. Smart-money is still on the market even though cash is king in these difficult times. However, it is clear that startups that can’t make it through the year are facing a distinct disadvantage. Thus, I would recommend those who wish to raise to show resilience, to extend their runway to the maximum and to turn into anti-coronavirus startups without compromising their core business or ambition too much.

Semantic Ventures Alex Shelkovnikov — Partner

  • Go out to raise funding for something you feel really, really passionate about.
  • Plan to be super lean and have a plan for how to get to practical milestones reasonably fast. Get a good view on which funds are still truly open to doing new deals and what their criteria are before spending a significant amount of time and effort with the fund.
  • Don’t ignore the hard questions about how you’d navigate current market conditions, be upfront about which actions you will be proactively taking.
  • If you are in the lucky position to choose, favour investors that have the ability and history of providing further support in harsh times.

I’d like to thank all of our investor friends for taking part in this. We thought it would be a great idea to bring as many opinions together as possible, creating the broadest picture and hopefully providing the most value.

Next week we will be publishing part two of this post. We’ll be looking at what startups who have already fundraised can do to optimise their businesses and what differences, if any, there are right now between Europe, Asia and the US in terms of fundraising opportunities.

Before founding dGen, Jake was originally a partner at Signal Ventures, investing in blockchain tech. In late 2017 he founded hype partners to help build and nurture ecosystems for blockchain projects and has worked with many top 100 projects. Jake is one of the founding partners of Beyond, a venture studio exploring a new world.