You have a revolutionary business idea. Your business mentor advises you to go for it. Of course, you’ll need to raise capital to launch, and you’ll likely need additional rounds as you grow. But you know venture capitalists love betting on innovative concepts with proven strategies and expertise at the helm.
There’s just one problem. The economy is tanking.
“Most VCs and angel investors (will be) much more selective in choosing the companies in which they invest,” during an economic downturn, says serial entrepreneur Steve Streit. “Investors will always want to invest in good companies, but risk management will make the fundraising process longer and more arduous for all but the most successful young companies.”
With a more conservative approach supplanting risk taking, how can you raise the funds you need to launch and build? Here are five tips for securing seed capital in turbulent times.
1. Think outside the typical fundraising landscape. Just as alternative health modalities can complement mainstream medicine, unconventional sources of capital can be the key to finding funding in a downturn. This is especially true in industries where philanthropic organizations are seeking to fund projects that serve the greater good. So, for example, if your tech startup intends to help solve the climate crisis, you might try pitching Footprint Coalition, which invests in new technologies for environmental restoration, or Breakthrough Energy, a Bill Gates initiative with a net-zero emissions objective.
2. Take a softer approach. Though it might seem counterintuitive to de-emphasize money with potential investors, in an economic downturn, it makes more sense to focus on the stakeholders. What value will you provide that supports their mission and vision? This subtle approach may be a better way to gain their attention, in lieu of a strong ask.
3. Show fiscal responsibility. Yet VC capital, of course, is key. Investors want to know how you’ll make money with their investment. In a downturn, plot a two-year (or longer) path to profitability on which VCs can hang their hat. If you can show a long runway, they’ll know you understand market cycles and the importance of being conservative in tough times.
4. Communicate and appreciate. This is not the time to be head down, full steam ahead with blinders on. Venture capitalists want and need input during a downturn more frequently, and in greater detail, than in a robust economy. Start by showing gratitude. You don’t need to go overboard, but everyone appreciates a thank you, especially when it comes to money. A personal call or card means more than an email. A small gift, particularly if it’s something you know they will like, is also welcome.
In addition, think about how you might publicly spotlight your donors, perhaps with a social media shout-out. As long as you’re not in stealth mode and no NDEs prevent it, this is a terrific way to show your investors and the world that you’re grateful for their support.
5. Prepare to pivot—possibly several times. In an economic downturn, you may need to tweak your original idea to address profitability. Listen to your investors and your advisory board, and pivot when necessary in order to keep your startup on track to succeed in the current economic climate.
With a little creativity and a healthy respect for long-term ROI, startups can successfully secure the funds they need, even in an economic downturn.