Venture funding and financial strategies in times of crisis

On 25 June we invited our Nordic start-ups to join us for an online session with the author of ‘The Startup Funding Book’, business angel and serial entrepreneur Nicolaj Højer Nielsen and Ida Åsle, Head of Platform at byFounders. The objective of this virtual gathering was to address key concerns and questions regarding the current financial situation and provide actionable insights on how to cope in times of crisis.

The event was further enriched by the Nordic Accelerator’s wide-ranging impact start-ups who got the opportunity to share their experiences and ask specific questions from the experts. Let’s see what we have learnt.

Direct strategies to mitigate the crisis

Nicolaj kicked off the session by sharing insights about other venture funds and start-ups’ coping mechanisms. The key message of his talk was to be strategic and think ahead, as the crisis may be long lasting. He advised founders to avoid putting themselves into a position where they need to raise large sums of money in quarter three and four of 2020. He addressed common practices to extend runway:

• Maximize public funding – seek help when needed
  There are several options to obtain additional public funding on the national, as well as on European level. Nicolaj advised companies to carefully look into this option and consider hiring professionals that possess the skills and experience to help compete for such grants. 

• Reduce costs via salary cuts – or chose an alternative path
  Many companies are reducing costs by letting employees go who are already in a vulnerable position in an uncertain economy. Nicolaj warned founders about the ethics of this decision and outlined alternative solutions, such as giving out warrants. The bottom line was to involve skilled lawyers in the process if the choice is to get employees onboard as shareholders.
• Reduce other costs – focus on long-termism
  Cost reduction is a sensitive point that needs to be evaluated case-by-case. Nicolaj reflected on long-termism vs. quick gains. There is no one-size-fits-all, thus he advised founders to think ahead and be strategic when cutting costs.

• Raise a bridge round – even if you don’t need the money now
  Nicolaj stressed the importance of raising a bridge round, even if money isn’t tight for the moment. A bridge round can help avoid scarcity that may negatively impact the company. He advised founders to build on their local networks.

VC-proof advice

Next up was Ida Åsle, Head of Platform at byFounders. Ida shared her experiences, working at a prominent Nordic venture capital with global reach where world class founders support the next generation of founders. Due to her position in a Collective of Founders, Ida has a unique first-hand perspective on the challenges facing entrepreneurs at extraordinary times like these. Our key takeaways from her engaging talk:

• Do your due diligence on your investors
  Ida mentioned the importance of doing your due diligence before deciding to bring investors on board. She advised founders to do reference checks on investors before making any long-term financial decisions, for example by speaking to other founders in their portfolio.

• Target the right investor(s)
  Do some research into what VCs invest in your space, what their theses are, and get a feel for what their mandate looks like. Some VCs have a geographical mandate, others’ focus may be limited to one or only a few verticals or industries. Many VCs publish their thoughts online. These things are clues that you can use to tailor your approach, which will lead to a higher success rate. Another thing which is important to uncover is where a VC fund is in its investment cycles – do they still have money to invest into new companies? It’s important that start-ups understand how to use their time wisely when looking for investment opportunities.

• Virtual works, investments are on track
  Just because you aren’t able to meet investors face-to-face, it doesn’t mean that you are unable to raise funds. Ida explained her first-hand experiences in the byFounders’ community where the team has recently signed two term sheets with companies they haven’t met in person.

• Rejection is not personal
  Last, but not least Ida reflected on the sometimes highly specific criteria each venture fund works with. When evaluating start-ups, this is what comes into play and a rejection often means that you don’t fit that VC’s exact criteria. It is that simple. Don’t get beaten down, keep on looking for opportunities that match your business.

In the case of byFounders the criteria is ‘The 7Ts’: Team, Total Addressable Market, Traction, Tech, Transformation, Timing and 10x. Carefully reviewing relevant selection criteria is a crucial step for any start-up before sending a pitch deck to investors.

Keep the conversation going

During these two hours we’ve learnt direct strategies to deal with financial crisis and got hands-on knowledge from the perspective of a venture fund. After listening to the two experts, our Nordic start-ups got the chance to ask specific questions and share their experiences.

For further resources, Ida referred to byFounders’ The Situation Room, a series of virtual meet-ups hosted every Wednesday for twelve weeks, bringing together luminaries of the Nordic and Baltic tech ecosystems to discuss relevant and timely topics. Episode 10 of The Situation Room, ‘Special Edition: Female Founder Office Hours’ gives an idea about diversity and inclusion, the consistent challenges in the world of tech entrepreneurship and venture capital that have not gotten smaller in the current situation. A topic of great importance to EIT Climate-KIC Nordic’s Accelerator. Episode 2 ‘Mitigating Risk in Times of Uncertainty’  and episode 9 ‘Fundraising in a Downturn’ provide additional insights about the topic of this virtual gathering.

We want to thank our experts for this engaging session, as well as our start-ups for the eagerness to learn, ask questions and share their experiences. Let’s keep the conversation going and learn together so we can build a better future.

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