When the U.S. went into Covid-19 lockdown early last year, it was still unclear what effect such a large-scale global crisis would have on startups and VC. However, nearly a year in, we've seen that the uncertainty created by the pandemic doesn't have to completely throw your funding goals off course. In fact, according to a recent report, U.S.-based startups raised an estimated $36.5 billion in funding in Q3 2020, despite fewer total deals.
Though the funding process for most of 2020 looked completely different from decades past, deals are still getting done. By leaning into new ways to show value, savvy startups can prove their resilience to investors and close funding rounds, even when meeting with investors face-to-face is not an option.
How to Make New Funding Processes Work to Your Advantage
What can founders do to land funding during the pandemic? Here are three tactics I've seen work well so far and how startups can apply them to make the most of the deal-making process moving forward.
1. Rise to the (virtual) occasion to leave a lasting impression
While connecting with the right VC is one of the biggest hurdles to overcome, making your company shine when you don't have the benefit of showing it off in-person is equally important. Since investors can't walk the halls of your company to see your teams in action, observe your office culture, or engage in spontaneous conversation with employees, it's critical to create an engaging view into your business beyond a typical presentation.
Find a way to push past the barriers of Zoom and provide an accurate, compelling picture of what sets you apart. Visuals and multimedia, for example, give investors something to connect with. Think customer and employee testimonial videos, interactive demos, or images, all of which can help you break through the screen and capture attention.
In working with Orchard (a Revolution Growth portfolio company transforming the way people buy homes) on its latest funding round, we were incredibly impressed by the thought and proactivity that went into its support of the due diligence process. We weren't able to meet with the team in-person before the pandemic hit, and for the first time had to rely on virtual meetings and assets to evaluate whether we were a match.
One of the tactics that stood out the most, beyond Orchard's presentation, was the quality of information in their virtual data room, which anticipated every question an investor might ask and guided us through due diligence seamlessly. Data rooms, especially during the pandemic, can and should act as an FAQ for what matters most to investors. The best data rooms simultaneously provide "in the weeds" details where needed while still communicating the bigger picture on long-term opportunity, essentially providing investors with the answers to the test.
Consider opening up your extended team's time as much as possible as well during fundraising. Orchard connected us with its full leadership bench (heads of sales, finance, operations, product, technology, legal and compliance, etc.), as well as the company's boots-on-the-ground agents in places like Austin and Atlanta, who were able to paint the broader picture of Orchard's business and culture. Providing VCs (at the right stage of engagement) with access to employees and third-party advocates has always played an important role in helping build a connection between company and investor, and especially helped us complete our diligence in a purely remote environment.
2. Be clear on the impact of Covid on your business (both what you know and what you don't)
Although many companies experienced an understandable "fog of war" moment, causing them to momentarily lose their bearings early in the pandemic, we're too far along in the crisis to not have a strong answer on how it has changed your business. Despite the public market reaching all-time highs recently -- with some businesses buoyed by recent events such as the election and holiday shopping -- investors are already looking past these peaks to analyze what the business outlook will be once the dust settles.
Have clear and concise responses ready that speak to several key areas: how Covid-19 affected your business; the measures your company has taken since to pivot and sustain growth; what factors or events have impacted your spikes; and how you're allocating time, attention, and money for the long term versus the short-term changes. While answers need to be crisp on how recent events altered operations and strategy, I've found it most helpful when entrepreneurs are humble and mature enough to also clearly articulate what they don't know about the months and years to come. No one has full certainty on the lasting effects of Covid-19, but good operators and stewards of capital come to the fundraising process prepared with scenarios and risk tradeoffs identified for the known unknowns.
Beyond the business impacts, VCs will also pay attention to how CEOs and their direct leadership teams stepped up to steer the ship, and how they plan to continue doing so in 2021. VCs are always looking to assess a founder's or CEO's resiliency, and for a lot of the businesses we have met recently, there has never been a greater case study of dealing with adversity than 2020. Learning how leaders dealt with the different phases of navigating this pandemic, initially surviving and hopefully now thriving, has been a major diligence item for us during these unprecedented times. How company leaders protected employees and customers, how they preserved investor capital and business liquidity, how they interacted with board members and advisers, and what they've learned from it all are factors an entrepreneur should be prepared to speak to in funding interviews.
3. Use the momentary slowdown to grow your network
Getting noticed by investors can be a challenge, and without networking opportunities, cold outreach may be your only option. The good news is that without hectic travel schedules and calendars booked with in-person meetings, many investors have more time these days to consider cold inbounds. So it's a good idea to "take the shot" and reach out. With conversations taking place on Zoom rather than over lunch, consider approaching investors beyond your geographic center of gravity. Partnering with entrepreneurs outside of Silicon Valley has long been a part of our investment thesis and we're glad to see that the pandemic has spurred other VCs to look outside of the coastal tech hubs where they are based to write their next check.
Going beyond the standard intro note and digging into your connections can also help make your outreach more relevant. Connecting the dots between you and someone the investor already knows or trusts -- whether it's a different investor who may have pointed you to them, a lead with a CEO they're familiar with, or a partnership with another company in their portfolio -- can improve your chances of receiving a response. However, if you don't have those relationships to call on, don't be dissuaded in your cold outreach. Investors may be just as impressed with your boldness and tenacity.
Finally, remember that even if the timing is not right today, the possibility of reconnecting with the same investors down the line isn't out of the question. Don't lose sight of the long term when interacting with your network, and know that if an opportunity doesn't pan out now, those relationships are still valuable to maintain for the future.
The changes brought on by the pandemic don't have to mean that your visions for funding need to be put on hold. If founders are open to learning different steps to a new dance, they can make the process work to their advantage. While these changes may not be here to stay forever, applying the power of your network and enabling a compelling and transparent virtual diligence process can prove fruitful for founders looking for investment in the year ahead.