HOW TO RAISE CAPITAL DURING A CRISIS

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.

 

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