It is no understatement to say that the Coronavirus has disrupted the flow of market practices throughout the world. To a greater or a lesser degree and depending on where you live, you have found that stores have had to be shuttered, and the flow of commerce has been affected as a result. Besides being region specific, some industries have experienced severe restrictions while others have encountered an uptick due to increased demand. This has directly impacted the way venture capitalists are operating.
During this confusing time, venture capitalists have not been immune to the changes rippling throughout the business world, as the entire model has had to take notice. It is important to continue partnering with up-and-coming companies while also mitigating risk in the following ways.
Lengthening The Process
In the days before COVID, the period of time during which venture capitalists would consider a startup was determined by factors that were largely predictable and that ran according to industry standards. Today, however, that is a different picture.
Lending institutions are facing delays due to simple staffing shortages found throughout a variety of sectors, but part of this is also a choice they are making. It is imperative to take more time to dig deeper and to consider a variety of risks before committing. The perils of moving too fast are greater than the benefits at this point in time, and so, firms who are looking for financing must be flexible with this aspect of courting investors.
As unfortunate as it is, if your revenue streams are depending on meeting with the public or are contingent on large groups of people being able to move freely inside enclosed spaces, you may be less able to receiving funding at this time.
Many of those who work with enterprises in need of seed money are reluctant to take on the dangers of relying on income that may be affected by an unknown future. Another difficult aspect of the current situation is that they will also be less likely to want to meet with founding members in person, as they will not wish to potentially contract the virus. This will make it more formidable to forge relationships and to establish rapport with those you wish to work with.
Taking On Fewer Investments
Epidemiologists and virologists know we are in the beginning stages of the COVID-19 crisis. Already, in the United States alone, a contraction in the financial markets has occurred, and spending has gone down. While this has resulted in larger savings in bank accounts and a larger capacity for lending as a result, this nevertheless means that there are fewer dollars circulating in the economy.
Many people are out of work or are facing reduced hours, and fiscal experts are predicting dire consequences. Nevertheless, a vaccine is in the works, but the timeframe is up for debate. When predicting a return on investment, this means that financial institutions are going to take on fewer investments, causing them to become choosier. Competition is going to increase, and this means firms need to frame their business plans and proposals more carefully, focusing on value and viable sources of growth that will continue despite an uncertain future.
Fidelman and Co. is in the business of helping startups create business management strategy, excel in financial administration, and craft superior presentation models. We provide valuable oversight and put our expertise to work for you as you seek venture capital partners. Reach out to us with any questions you have, and we look forward to working with you.