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HOW TO RAISE CAPITAL DURING A CRISIS

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By Rick Brar, CEO of Brains Bioceutical

 

The ongoing Covid-19 pandemic has had a devastating impact on the global economy and financial markets will take a long time to recover. In fact, the International Monetary Fund (IMF) has reported that the ongoing crisis has triggered the worst economic slump since the Great Depression and have predicted resultant losses of up to $9 trillion in global GDP figures over the next two years.

Whilst raising capital for a new business venture has never been easy, securing investment will undoubtedly seem like a near impossible task amid such turbulent and unpredictable market conditions.

However, despite widespread fear that venture-capitalists would postpone any new investment deals until the current economic conditions improve, deal activity only dropped by 6 percent in the first half of 2020, compared with the previous year.

One explanation for sustained investor interest is that many market leaders have been born out of a recession. For example, Apple and Amazon launched during the dot-com bubble burst and Uber, Airbnb and Slack all launched during the 2008 recession.

However, whilst this narrative offers hope, investors have still become extremely wary of the pandemic’s economic implications. Therefore, entrepreneurs and business leaders alike will need to continue to quickly react and adapt to changing market conditions, and adjust how they approach raising capital, if they are to be successful.

 

Rick Brar

Make it personal

For most companies, getting investors to back your vision can be challenging. For businesses in emerging industries, it can be particularly hard. Without such an established track record on sector returns, for most investors, it is easier to move on to the next opportunity, rather than taking the time to assess risk and rewards. The key in being able to capture the interest of a potential investor comes from your ability to connect with the individual you are pitching to on a personal level.

However, amid the current shift to doing business in a Covid-19 world, making a personal connection with someone you’ve never met can be extremely difficult. It is without a doubt that Zoom and phone calls have opened up new opportunities, but without gaining the trust of the person on the other end, you’ll never really have their full attention. Therefore, before you jump onto a call with a potential investor, make sure you’ve done your research and know who you are really talking to. Pitch on a personal level, get to know them and learn what is important to them.

 

Consider your communication strategies

During periods of market downturn, it can be all too easy to get caught up in the hectic pace business demands and hold back on communicating with potential investors, especially out of fear of ‘rocking the boat’. However, during a crisis, it is especially important to communicate and be open with your contacts.

At the end of the day, we are all navigating the ongoing pandemic together. Remember that there are real people on the other side of the screen and that continued communication during the most uncertain times will help to strengthen your relationships and pave a way forward.

 

Embrace the rise of the digital network

With travel on pause, and social distancing set to stay for the foreseeable future, entrepreneurs and business leaders must develop their digital networks if they are serious about raising capital.

Whilst getting in front of investors may now require a more creative approach, the monumental shift online has opened up the opportunity to reach out to a much wider range of investors, irrespective of their locality. In order to have an edge over your competitors, establish an online relationship management system to ensure you are communicating effectively with potential investors and also use a data room to safeguard information. This extra step will not only help to protect you from any digital breaches, but it will also demonstrate to investors that you are proactive and well equipped to operate in this new digital era.

 

Prioritize the Covid-19 pivot

Before you approach any potential investors, it is crucial that you review the viability of your business model in the context of the current economic climate. Is your business still profitable amid the Covid-19 pandemic? Is it still scalable and what makes your business resilient?

Any serious investors will want to know how you are responding and adapting to the ongoing crisis. Be prepared to discuss what’s working – and what isn’t – but more importantly, demonstrate that you understand the current situation and show that you are making tactical adjustments and pivoting your business accordingly.

 

Assess & restructure your financial models

During uncertain times, it is important to be open to negotiations when it comes to valuations. Instead of setting your sights on an extremely high figure which may deter investors, consider setting a more achievable valuation. This will not only help to gain potential investors trust, but it may also help make your funding round more attractive.

Despite the ongoing market upheaval there are a number of industries that still going from strength to strength, for example; CBD and health & fitness brands to e-commerce disruptors and education platforms. Whilst there are opportunities to thrive, the key to success, is being honest with yourself. Is now the right time for your company to raise capital? If so, make sure to build in buffers to protect your business during these uncertain times. For example, investors may need more time between funding rounds and so adapt your financial models accordingly. Demonstrating to investors that you are on top of these considerations will go a long way.

 

Looking forward  

It is without a doubt that these are challenging times for all businesses and the processes to secure investment have changed significantly over the past 10 months. However, if you can identify mutually beneficial opportunities and demonstrate to investors that your business is well-positioned amid the current market conditions, you can still successfully raise capital.

If anything, periods of crisis create an opportunity to accelerate change at a much quicker pace. Now it will be interesting to see which entrepreneurs and business leaders adapt best to these changing market conditions and come out of this period with a renewed focus and strategy to succeed in the long term.

 

Rick Brar is the CEO of Brains Bioceutical. The company produces natural CBD as an Active Pharmaceutical Ingredient (API) for pharmaceutical applications, research & development and clinical trials. Brains Bioceutical are currently going through a £30 million funding round.

 

Finance

Why financial services is stepping into a new era

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by James Mingard, Head of Retail & Finance at Maintel

 

When comparing industries, financial services has arguably fallen behind when it comes to digital transformation. The sector has found it especially challenging to move from more traditional, legacy ways of working. But, with challenger banks and changing customer expectations, the tables have turned. According to a  recent research report from Maintel, in partnership with RingCentral, the financial services sector is leading the way when it comes to implementing digitalisation plans. In fact, 35% of those surveyed within the sector claim to have fully implemented their digitisation plans, compared to just 26% in other industries.

 

Evolving Technology

As such, banking technology is innovating at a significant rate, with everything from start-ups offering online-only credit cards to TSB opening a 100-seat tech centre in Scotland. There is little doubt that the sector understands the need to be digital-first, but there is room for improvement. Over half of respondents said they have seen an increased demand for digital communication from customers because of the pandemic, but the channels on offer fall behind other industries.

Over half (55%) of other industries communicate with customers through Twitter, compared to just 30% in the financial services sector. We might not want to discuss our mortgage over Instagram or to tweet about how much money is in an ISA. However, there is a real opportunity for the financial sector to add to its offering and grow its digital communication channels. By giving customers more options, it will help improve customer experience and let the end-user reap the benefits of digital transformation strategies. Balancing the expectation for digital-first interactions while ensuring a high-quality customer experience is central to creating an efficient, yet personal service.

 

Collaboration is the future

The contact centre of the future should represent an integrated approach to unified communications. It should bring business experts and agents together, across every channel to deliver real-time customer experiences in a cloud-based, collaborative engagement model. For financial services, this once seemed a pipe dream but advancements in digital transformation mean that the sector can in fact set the standard for other industries.

From a productivity point of view, team collaboration can also be enhanced using innovative communication technology. This helps to improve an employee’s workplace experience by providing instant access to essential information and allows them to work effectively from any location. Flexibility has not always been associated with the financial sector, but by giving employees better technology and more autonomy, naturally, this has a knock-on impact on the experience that customers receive and helps to foster long term loyalty.

 

Customer comes first

Banks used to be built on life-long custom. Many people would be with the same bank from their first current account through to the day they passed away but the volume of competition, variety of offers and new customer deals mean that today’s consumers are fickler than ever.  To really stand out, financial services providers need to make sure that everything from communication strategies through to software has the customer at its heart. And technology is key.

Indeed, customer experience, customer  and technology insights were the top three benefits of digitisation within the sector, according to Maintel and RingCentral’s 2021 report, It’s therefore clear that a customer and user experienced focused approach is key to success in the financial sector.

 

Click here to read the research report in full – How to translate unified communications and digitalisation into better customer experience.  For further information find out more :- https://www.maintel.co.uk/industries/financial-services/driving-financial-services-digital-transformation/

 

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FINANCIAL MARKETS IN 2022: INFLATION, ENERGY PRICES, AND THE CONTRASTING PERFORMANCE OF STOCKS

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Bob Jenkins, Head of Research, Refinitiv Lipper

 

Anyone hoping for a reprieve from the chaos and uncertainty of the last couple of years is likely to be disappointed. The pandemic will continue to have an impact on global economies, both directly (such as ongoing lockdowns and restrictions to combat the disease) and the exhaust effects we’ve seen in areas such as the production of goods, supply chain challenges, labour shortages and rising energy prices.

At the same time, the digital disruption of the financial world continues apace, with assets once overhyped becoming increasingly mainstream.

To make specific predictions in such an environment might seem like a fool’s errand, yet it is possible to discern some themes that will shape the course of financial markets in the coming year.

 

  1. Global inflation gets stubborn: Inflation is not transitory, and we are seeing a foundation for higher prices being put in place thanks to the supply chain and labour issues previously mentioned. In major developed markets, I think we’ll see stubborn inflation regardless of whether Covid remains a pandemic or begins to enter an endemic phase. The situation is slightly more positive in the US; while inflation will remain at a 3.5-4.5% range, a reduction in supply chain bottlenecks, increasing labour force and improved unemployment rates will serve to reduce the impact of primary inflation forces. We should bear in mind that households are estimated to have around $2 trillion in savings, which will maintain consumption levels and keep up the pressure on labour and supply chains.
  2. Rates will rise: Rates are likely to rise, with discussions in several major economies indicating a tapered end to the period of low rates we’ve seen since the 2008 financial crisis. This will probably be achieved in fits and starts as central banks navigate virus outbreaks and any resulting economic shocks. For instance, both the Fed and the Bank of England have indicated there will be hikes, but it is likely that they will rely on tapering at first to slow stimulus while also trying to navigate sentiment swings and volatility arising from waves of infections and/or new variants.
  3. China to lead economic growth, but not by much: China’s growth is likely to be around the 4-5% mark, with the US just slightly behind at 3.5-4%, off its 6% pace from the first part of 2021. The European Union and United Kingdom will likely trail the US, even if they have been exhibiting similar economic issues, while emerging markets could be hit by a combination of the Fed tightening up and challenges dealing with Omicron and other COVID waves.
  4. Higher energy prices are here to stay: Multiple forces will provide support to higher energy prices: supply chain issues, political posturing, demand for heating/cooling due to climate change, but Covid will occasionally step in to disrupt and counteract these forces. Even carbon neutral efforts could cause overall energy prices to rise in the near term as energy producers shift to renewables, with many of these alternative sources remaining expensive. Oil will stay in the $70-$80 range, with the occasional dip towards $60 as intermittent Covid concerns influence energy consumption in the travel sector.
  5. Underperforming stocks with a positive finish: In general, slower growth and lower rates help Growth and Tech stocks while faster growth and higher rates benefit Value and Cyclicals and I believe the economy will tend to lean towards the latter scenario. That said, growth and value leadership will change hands throughout the course of the year as the economy reacts to Covid waves and switches between lockdown and reopening. I suspect Value and Cyclicals will outperform Growth and Tech at the margin, but the dominate capitalization size of the latter two will pull down overall stock market returns. Of course, as with consumers, there is a lot of money being held back at the moment. Businesses have significant cash reserves and self-directed traders continue to shovel money into markets, which, when combined, can help buoy stocks.
  6. Flattening the bond yield curve: I think we will see some retrenchment as a result of rising rate programs by central banks that will largely result in negative to flat returns across core fixed income. Any selling in longer term bonds in reaction to either economic or central bank activity will be mostly offset by buying due to the global desire for yield, thus keeping a lid on longer term rates. Rising short term rates in this environment will serve to flatten the yield curve. High yield bonds could provide for pockets of opportunity as they are potentially tied to cyclical areas of the economy that could show leadership.
  7. The contrasting futures of ESG and digital assets: In the coming year I think we’ll see digital and tokenized assets become almost as popular as Environmental, Social and Governance (ESG). However, whereas ESG is a permanent shift that will eventually encompass the evaluation of all mutual funds, digital currencies still look a little more niche. We could well see them proliferate over the next few years, potentially even becoming a new quasi-asset class, but they will remain a satellite allocation in risk tolerant portfolio strategies. They are unlikely to achieve the status of being included in mainstream portfolios such as defined contribution retirement plans where assets can flow in large, consistent amounts – unlike ESGs, which could well reach that point in the coming years.
  8. A more defined ESG: It is looking increasingly likely that ESG funds will begin to splinter into more thematic offerings as investors eschew the combined “ESG” mandates in favour of more targeted strategies that enable them to better assess stocks aligned with fund objectives. This will also help avoid those securities jumping on the ESG bandwagon.
  9. The continued rise of the Big Five: Of course, in an era of unpredictability, there are always going to be trends or themes that run counter to accepted wisdom. Despite the aforementioned attempts of central banks to raise rates, the Big Five stocks (Microsoft, Alphabet, Apple, Amazon and Nvidia) will continue to show leaderships. While technically falling into the camp of richly valued Growth, these stocks have begun to also acquire a status as a safe haven, with generally strong earnings demonstrating a consistency and dependability that attracts investors. They also populate immense amounts of passive and retirement plan assets under management, equating to steady flows into them in almost any economic environment.

 

All this plays out against a backdrop of our changing stance on COVID. While there are some commonalities in how different regions tackle the pandemic, the continued uneven nature of our global responses makes it hard to determine what state we will be in this time next year. If most major economies can move to an endemic setting, then we should have the tools in place to make ‘living with Covid’ a reality. However, the continued emergence of other variants will cause volatility, and with it a predictable jostling of market leadership. Perhaps the only predictions anyone can truly make is that life will continue to be unpredictable for some time to come.

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