Let’s Talk About Raising Capital in the Pandemic

November 25, 2020 4 min read

Opinions expressed by Entrepreneur contributors are their own.

• According to ECLAC data, 500,000 formal companies will not survive due to COVID-19, at least in Mexico, which represents the loss of 1,573,000 jobs.
• The pandemic and everything that comes with it has brought various challenges to the industry, both for startups and venture capital investment funds alike.

Today it makes it difficult for us to understand that everything that happened before the pandemic corresponds to a different historical moment. There was absolutely nothing related to phrases like “healthy distance”, “pandemic”, world crisis accompanied by uncertainty and a disease from which we do not know when we will get rid of it, business closures.

According to ECLAC data, 500,000 formal companies will not survive due to COVID-19, at least in Mexico, which represents the loss of 1,573,000 jobs.

Naturally, the scenario for raising capital in Mexico and in the world changed radically for startups .

Networking has ended, until further notice

The pandemic and everything that comes with it has brought various challenges to the industry, both for startups and venture capital investment funds alike. Initially because the meetings that took place between entrepreneurs and investors, key in the capital raising process, are almost impossible, so they are limited to the opportunities that happen in digital media.

^{Image: LinkedIn Sales Navigator via Unsplash}

If the startup has good luck, it will have the opportunity to interact with the investor at that precise moment and resolve any loose ends or investor doubts, but if not (because the dynamics of the event do not allow it), you will have to settle for presenting a pitch and wait until, in the event that the VC has been impacted by what you presented in that short space of time, the fund will contact it.

In many cases the startup does not know who is witnessing it, the times do not give the opportunity to network as in the much warmer pre-pandemic. Let’s not forget that this type of meeting encouraged such meetings more easily than when looking for investors one by one , this is even more complicated when the startup does not know the industry.

Behavior of the venture capital industry in the pandemic

This situation has diminished the growth of venture capital compared to 2019, “so far this year, there has been a one-third drop in the value of venture capital investment in Mexican ventures compared to 2019, according to Transactional Track Record (TTR) ”. This is not bad news, the funds have simply responded by proposing strategies that counteract the effects of COVID-19 , apparently only the result of the investments made in the Mexican market has been modified, although there are a greater number of companies that receive financing, the amounts have been lower during 2020. According to the same source: “between January and September, more than 500 million dollars were invested in the Mexican entrepreneurship ecosystem, which represents a reduction of 34.5% compared to the same period of the previous year; but in the number of transactions, the result has been different, since they grew 16% to 72 (the study did not manage to consider the Kavak lifting).

G2, a consulting firm specializing in startups and capital raising strategies, recommends that you address two key elements:

1. Analyze the elements that you should highlight in your pitch deck that investors will allow them to understand, that you have a perfect analysis for the momentum of your company at this particular time given the nature of the presentations and,
2. If you have no idea which investors to approach, where to find them, how to present your project to them, which elements to highlight, etc., don’t guarantee a resounding failure in advance. Join an expert.

Raising capital is not an easy task, you do not raise on the first attempt (usually and in the experience of this firm), so you must carry out correct planning, in advance, with the right people, before your money runs out .