– Anthony is CEO and Co-founder of SeedLegals
With Covid restrictions tightening and the government instructing all companies to ensure their employees work from home where possible, it’s clear the challenge for businesses is far from over.
At SeedLegals, we’ve seen the varying degrees of impact on start-ups and businesses across the UK. Many are under increasing pressure, while others are thriving and growing as we adapt the way we live. Both scenarios, however, mean more businesses than ever will be seeking investment to either replace declining revenue or support growth and help to navigate an increasingly uncertain economic future.
This investment will provide crucial support for both the economy and the startup ecosystem, and access to investors and platforms which support funding rounds has never been easier for entrepreneurs.
But the same cannot be said for investors. With increasing demand for their time, funds and experience, choosing the right investment and managing deals has never been more challenging. From the influx in approaches, learning to network virtually and choosing businesses that have the ability to adapt to a volatile economic climate, the landscape for everyone has changed.
Just like businesses, investors need to adapt too. As the largest closer of funding rounds in the UK, we’ve taken a look at some of the challenges facing investors right now, and how they can tackle them.
- Capitalise on virtual networking opportunities
Whether you loved them or hated them, pre-Covid, networking events were invaluable. But with everyone advised to work from home for up to six months and large conferences postponed or cancelled, we’re not going to be seeing physical events again anytime soon.
In their place however, the virtual conference has arisen. Like many other things, networking has gone digital. Zoom conferences run by companies like SaaSGrowth and Informa Connect offer investors multiple opportunities to connect with entrepreneurs in an informal way, helping them make decisions about whether to progress conversations.
LinkedIn has also emerged as one of the most valuable social tools in an investors’ armory – the networking platform has reported a 25% growth in user sessions. These aren’t just people looking for jobs – with over 690 million members, LinkedIn is the perfect place to connect and engage with new prospects.
In this new world, it’s important we share information amongst us too. I have personally taken to using WhatsApp as a networking tool – it’s great to be able to chat to groups of similar people, across different industries, who can share tips, advice and challenges they are facing in a quick and informal way.
- Manage your deal flow
If the economy is to recover from the recession we find ourselves in, it will be vital that businesses receive the funding they need.
Start-up and scale-up businesses face the added pressure of needing to continue to grow their business while adapting to an ever-changing landscape. Many have been catapulted into hypergrowth as a result of the changing consumer and business needs.
However, the process of arranging investment with multiple seemingly worthy businesses represents a hugely arduous administrative task. This was true before lockdown, but is exacerbated by the current norm of employees either back on furlough or working remotely.
With an inevitable upcoming clamour for investment, investors need to be mindful and ensure they are not overwhelmed by the huge number of potential opportunities.
We recently launched a new product for investors, Deal Manager, which has been specifically designed to solve this issue. Investors can build their investment proposal, generate term sheets and legals and review, share, agree and sign everything they need online.
It aims to speed up the process of closing a round for investors by eight times, keeping everything in one place and taking all the interaction online to reflect the world we currently live in.
- Identify businesses with opportunity for growth and longevity
Adaptability is a particularly important quality right now. This might seem obvious, but with such a volatile economic landscape, it is imperative that investors identify businesses which have the ability to adapt to change.
While many businesses have been catapulted into hypergrowth, it might be tempting to invest in a business which is thriving in the current climate with the potential for immediate returns.
However, considering how the business will fare when we do eventually return to ‘normal’ will be key. Can it adapt just as easily to the needs of its customers without the restrictions currently placed on us? Will people even want it? And when things become ‘normal’ again, will the business still have the capacity to grow at the same speed?
That’s a vitally important consideration.
While objectives will differ from investor to investor, short-term planning is a privilege few are privy to in the current climate, so looking at longer term investment strategies is the only smart move for investors.
- Make reasonable valuations
Covid has seen millions wiped from, and added to, businesses. This makes valuations increasingly difficult.
Traditional methods of reaching a valuation – cash flow, net assets and EBITDA – are hampered by the uncertain, changing landscape and while many investors and industries will have general rules of thumb, many of these may not be applicable at the moment.
Taking into account things like assets, profits and cash flow remain, but one of the most important assets now is the potential for adaptability and growth beyond Covid. This means that choosing the ‘right’ business to invest in is even more important.
At SeedLegals, we’ve seen thousands of funding rounds take place, with clear trends in industries like Healthtech and Edtech. These are not only valuable in the short term, but have the scope to change the way we operate in our hospitals, schools and universities in the much longer term.
