The landscape for showcasing early-stage companies to potential buyers and investors has changed dramatically in the face of COVID-19, says David Weaver, chief investment officer at City Side Ventures.
“There's so much happening virtually right now,” Weaver says. “You really have to catch their eye with something very creative. I find that some of the people doing messaging are taking advantage of this to find a way to help make their clients more attractive.”
Technology can certainly play a key role in stimulating deal activity, especially in an era when social distancing protocols have taken over. One thing that hasn’t changed, however, is the value of a personal introduction to get a fruitful relationship started.
“Going to [potential buyers and investors] cold has always been difficult,” Weaver says. “It's going to be even more difficult now under these conditions.”
Weaver spoke with the Smart Business Dealmakers Podcast about deal flow during the pandemic and what founders can do to make things happen. Here are excerpts from that conversation.
Listen to the full interview
What is the climate like now for companies looking to raise capital?
There are still opportunities for companies to raise money, but they’re going to have to be extremely attractive and de-risk as much as possible what they have. Valuations might be an issue, as well. They might think that coming out, before COVID hit, that their valuation might be $5 million or $10 million.
And now, because they’re competing with other companies in the space, their gap is getting a little bit tighter and they might have to drop their valuations to make it more attractive to investors. So we’re going to see more of that play out, I think, over the next few months.
Should investors be spooked about putting their money into funds for early stage companies?
I think being in a fund versus doing something on your own is a more protected environment. In a $10 million fund, you should be in 20 or 30 different companies over time, so that really spreads the risk across a lot of companies to assure you’ll get at least one or two hits that do very well. Putting the money in the market is not going to work right now.
What should early stage entrepreneurs be doing right now?
Right now, if you don’t have any customers, you need to spend a lot of time making sure your MVP or your product is at a stage that you can get feedback from people who would be potential buyers. If you’re not ready to sell yet, validate that you have the price of the product or service right. You validated the market is strong for it and you’ve done something to differentiate yourself.
If you can’t afford patents right now, at least get some things filed and pending to start putting some IP protection in place. Everything you can do to de-risk the company to make it more attractive is better.