THE GRUMPY ENTREPRENEUR
Just like all of the rest of the world right now, you are trying to keep sane, keep the lights on, and possibly gaining a whole new appreciation for the work that school teachers put into nurturing those little growing minds, whilst attempting a DIY year 1 lesson plan extending well into the “foreseeable future”, however long that may be. On top of that you are either already in, or need to start the process of raising equity for your business.
Personally, I wouldn’t waste much time and energy on raising money at all. I would go back to business basics and focus on selling as soon as I can. Concentrate entirely on making enough revenue to cover your overheads. That might not be that helpful for most, so hopefully the points below do help.
At the time of writing this, I have been speaking to and trying my best to help companies since 18th March. I am 180 companies in, and counting.
With many of the same conversations and questions coming up, I wanted to try to cover these off in a little more depth. A number of the companies I have spoken to were closing rounds, mid-way through a raise or starting out one.
The first thing we all need to get clear on is that the bar is a hell of a lot higher than it was this time last year. When the economy is expanding, investors feel incentivised to invest in businesses, hopeful that the return may be higher than other investment opportunities. When it’s easier out there, investors have a general feeling that even if the founder doesn’t get it right all the time, there are always chances to put things right.
A positive note I should mention, is that some investors that missed out on previous rounds, see an opportunity to be investing at this time. So pull together those investors who were close to supporting previously and drop them a line.
There are funds with money still out there to deploy, but as history has shown, they have a lot more time to deploy funds and will take a lot more time to carry out due diligence.
How Long? Let’s start with, how long, or deep could this downturn/recession be? Everyone is speculating at the moment, that’s the first thing to say. Possibly for the UK, in the next 6 weeks, we will have more clarity over the rest of the year and how it will play out. Let’s be very clear, it’s unlikely to get better in the short term but then again, I feel like we are in a daily change.
Midway through – So you’re mid-way through a round, DD has been carried out by a fund. This applied to a fair few I spoke to in the last few weeks. The majority, investors had pulled out but there were a few that had ongoing conversations but were worried about how the deal may have changed. Honestly, my best advice on this is face it head on. Mainly because the deal may have already stopped for one side anyway so why waste further time and energy when you need focus on other things. Be polite, respectful, but not beating around the bush, should put you in a good place and hopefully gain that yes or no. Also, remember that some investors, who are committed and don’t want to let you down, might also be nervous and need some extra conversations to put their mind at ease or even slightly want to change the terms of the deal.
Partner and defer value – I am often surprised that more people don’t take advantage of this when raising funds might become a challenge. After the dotcom bubble did its thing and I found myself bankrupt, the chances of raising money became very very slim at best. What did I do? I partnered with people to deliver what I needed, whether that be development, marketing, knowledge, guarantors on funds. On a few deals, I would defer payment for a 12 month period based on milestones for the business. Today is no different and you will be surprised how many other companies want to change their view on a partnership that offers value to both sides for the long term now.
Practice – Not only do you now have to start pitching to investors via video conference, but also you get less time to spend with them, chit chat to name a few things. Maybe consider doing a 5-10min youtube pitch that you can send investors to. Make sure your punchy and not waffling on or trying to hype.
Delete lazy decks – If I am sent 100 decks, I can tell you now, that at least 40 of those, I will end up having to go back and ask basic questions that should have been in the deck. It’s like people think it’s a way of starting a conversation. What it really is, is annoying and not the best start. Assume, moving forward, that your deck has to beat the other 10 it’s against in 60 seconds. Full of facts, no fluff, no hype and all basic questions answered.
Back in Black– Defend, defend, defend. Get your business focused on profitability. When there is a downturn period, investors have a positive feel on seeing companies in the black, when maybe quite a few others are struggling both in and out of their portfolio. Profitability in good economic times is viewed as a nice to have.
Focus on Sanity – So it’s bad enough this is all happening and you are having to navigate your way through the negative. Get rid of any side projects, business units that are not having a positive impact on your company’s product and core value. Take a look at your team and get them all focused on what is valuable to the business and be on their top game for the business.
Beauty parade has gone – I have seen far too many companies surrounded by advisors or experts. They look great on a deck, or for name dropping but, when the going gets tough, they are nowhere to be seen. If I see this, then other investors do. Restructure your advisory and board support for the next 2 years on doing and not just talking a good game.
Accept dilution to survive – If you don’t accept dilution then you are probably going to have a very hard time in the coming months. Everyone in good times is busy negotiating on the valuation of the business. In a good economy, most entrepreneurs have a stronger hand when it comes to negotiating valuation. With less access to cash, and a tougher bar to reach for, this flips over to the investors having an upper hand in most cases.
Look after current shareholders – If you have not been sending out that monthly shareholders report every month, now is the time to make sure you do. Most shareholders will, if communicated the right way, help support their current investment.
Loans – I will go into this in more detail another day, but convertible loans/bonds were pretty popular after the bubble burst way back. Also there are various loans from the Government and alike. All I will say is, really understand the T&Cs on these.
The End Goal –
Your end goal should be to build a successful business that benefits yourself, your staff and your shareholders. That end goal might be 10 years away or it might be sooner. Right now, a near-term goal is to survive the rollercoaster we are all on. Entrepreneurs, when the economy improves, will make up for lost value in further rounds.
Keep Positive out there. Best David Murray-Hundley “The Grumpy Entrepreneur”