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Pandemic Outbreak: Top 10 Trends for Venture & Early Stage Investments

Since the beginning of the COVID-19 pandemic, leaders in the venture capital industry have gathered virtually to discuss the current state of venture capital and early stage investing, and analyze how it’s been affected by the coronavirus. Here are some of the main trends VCs are seeing in the market right now:

1. The amount of available talent is rapidly growing

  • Because of sweeping layoffs and lack of hiring in a wavering job market, there’s a brand new pool of talent available
  • Venture capital firms can take this talent to build out their teams

2. Every crisis creates opportunities

  • New products and services are seeing significant uptake due to COVID-19
    • Including telehealth, remote learning, cloud-related entities, and collaboration software
  • If your business happens to be in one of these verticals, you should have a significantly easier time raising capital, but how long that will last is unclear

3. There is still a large amount of capital that needs to be deployed

  1. Lots of venture firms have raised new funds over the last two years
  2. Even as the coronavirus causes a severe economic downturn in the U.S., these funds still need to deploy this capital—which is a positive factor for companies seeking investors during fundraising initiatives

4. Good ideas and good businesses will always back capital

  • Investors agree that if you’ve got a good idea for a good business and a great team, you have a very good chance of raising capital, even now
  • It's more important than ever to understand your market, your product-market fit, and why your product is a "killer app”

5. Following your fundraising playbook is key

  • Despite all the changes resulting from COVID-19, the playbook for raising early stage venture capital hasn't fundamentally changed; it’s still a relationship-based process
  • Entrepreneurs still need to find ways to build relationships with potential investors before starting a formal fundraising process
  • And with widespread stay-at-home orders in place—and no coffee meetings and networking events to attend—you may even find some VCs have more time to meet in non-traditional ways

6. Raising angel capital is difficult right now

  • Companies have to think creatively about how they’re going to maneuver their angel investing stage
  • Businesses must prepare for the possibility of not receiving angel investing, and will have to find alternative methods of gaining investments, such as:
    • Raising more friends and family financingBeing more efficient with capital
    • Turning paid customer consulting projects into products

7. The fundraising process will take longer

  • Venture capitalists are still navigating the challenges to investing remotely, temporarily slowing down the investment process
  • Entrepreneurs need to begin their fundraising efforts sooner to accommodate for the additional time needed

8. The current environment needs to be realistically factored into business plans and pitch decks

  • Potential VC investors will expect you to have proactively addressed how COVID-19 could impact your business
  • Questions to ask yourself include:
    • How will my sales cycle be impacted?
    • Will my pricing be effected?
    • How are my customers being impacted by the pandemic?
    • Will my go-to-market strategy have to change?

9. Valuation needs to be flexible

  • Recognize the reality of the U.S. economy, and adjust your valuations accordingly
  • If you’ve found an ideal investor (particularly one that knows your business and will benefit your company through more than just their funds), consider lowering your valuations to accommodate their needs during the current conditions

10. Accelerators are a solid consideration

  • If you’ve ever considered participating in an accelerator program, now may be the time
  • You’d be able to continue moving your business ahead in a capital-efficient way, get valuable assistance, and build relationships
  • It would buy your business time, allowing you to reassess the state of the market in 3-6 months when there may be more clarity

COVID-19 has radically shifted the early stage investment landscape, and entrepreneurs need to be able to adjust and react. Keep an eye on these evolving trends and remember, some of today's best tech companies were founded during difficult financial times.