Entrepreneurs who had hoped to raise a round of investor capital in 2020 had their plans put on hold when the coronavirus pandemic hit earlier this year. With the subsequent layoffs and economic recession, there's a lot less money to go around for new ventures. Startups are facing the reality that securing investments — an already-difficult task in the best of times — may be even harder than it was pre-COVID.
The good news is, there are still investors who are looking for new business opportunities, despite the economic circumstances. However, what they're looking for in a viable startup has likely changed from their previous investment criteria.
What are investors looking for in the post-COVID era?
Gayle Jennings-O'Byrne, co-founder of WOCstar Fund, believes investors will now spend more time on due diligence before committing to an investment deal. They'll scrutinize the team and market potential even more closely than they may have before. In short, they want to be sure your startup truly understands its target client or customer and what the market needs right now, given the current climate.
"The key will be showing how startups can weather up and down cycles, operationalize their plans and, most importantly, capture and defend market share," Jennings-O'Byrne told CO—. "These were all important [factors] in the past, but … [startups will need] to provide a sightline and concrete actions to deliver on these areas."
Because the market and economy are so uncertain right now, investors will also be looking for founders who are confident in their ability to remain viable and profitable in the face of these external obstacles.
"Knowing your competitive advantage, how to maintain your advantage, iterate your strength and adapt will be vital in a post-COVID world," said Jennings-O'Byrne. "Help investors [know] that you can lower and mitigate risks and challenges."
[Read: How to Start a Business After COVID-19]
Knowing your competitive advantage, how to maintain your advantage, iterate your strength and adapt will be vital in a post-COVID world.
Gayle Jennings-O'Byrne, co-founder, WOCstar Fund
How to pitch investors after coronavirus
Pitching investors in today's world is not fundamentally different than it was before the pandemic. You still need to have a solid business model, a desirable product or service, a viable target market and proof that you and your founding team have the skills and experience to grow the business.
The biggest difference? A business idea that may have worked perfectly well pre-COVID may no longer meet all those criteria in the age of social distancing, or in a time when people are tightening their purse strings and only spending on the bare necessities.
If, however, you've determined there's still a need for your product or service in the current market, you may decide the time is right to pitch a venture capital firm or angel investor. Entrepreneurs should take the following steps when preparing their investor pitch.
Keep building
The best thing you can do as a startup seeking investor capital is build, build, build, said Jennings-O'Byrne. As you seek capital, continue to build your sales pipeline. Keep developing your products or services and invest in the right technology that will allow you to see decent traction in the market.
Know how you'll present your business plan
Anyone pitching investors will need to create a solid business plan first. While this plan doesn't have to be a formal, template-style document, it should clearly and succinctly explain your mission, your product, your market and your financial projections. When you're presenting your business plan, do your research on what types of businesses your potential investor wants to get involved with and tailor your pitch to align yourself with their interests.
[Read: 4 Signs Your Business Is Ready for Venture Capital]
Review your overhead costs carefully
Every dollar counts when you're building and growing a business, especially when you're taking on investors. Jennings-O'Byrne recommends reviewing, refining and renegotiating your business expenses to ensure you're using resources effectively. This includes your vendor expenses and any fixed and variable costs you may have. Conserving your resources and building up a long cash runway will give investors confidence that you're spending their money wisely.
Understand your financial obligations
If you have any debt in the form of loans, credit cards, lines of credit or any other borrowed money, know your financial obligations to your lenders inside and out, said Jennings-O'Byrne. Having outstanding financial obligations won't necessarily cause an investor to reject you. However, because they're looking for a return on their investment, they want to know you'll have a strong enough cash flow to cover your debts and still pay out their share.
[Read: Business Investors: A Guide to Knowing When and How to Find One]
Aim to build a strong relationship
It's highly unlikely that your first investor meeting will result in a deal, but don't be discouraged: Every pitch meeting is an opportunity to lay the groundwork for a solid professional relationship. By staying connected to an investor — even one who rejected you — you may be able to tap into their network and find the right investor through a mutual connection.
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