Startup Lean Coffee

Starting and Fundraising During a Pandemic

Published on
May 25, 2020

April was another virtual gathering; and most of us were (and are) still staying home, so it’s no surprise that we had COVID-19 on our minds. Our topics included:

  • How has the current environment impacted venture capital financing for early stage companies?
  • How to make money from home?
  • How to stay productive while staying at home for such a long time?
  • What will business be like as restrictions start to ease?

We covered so much information and captured so many recommendations that I just can’t write about all of them. You can download the raw notes here.

Early Stage Venture Capital

Fred Wilson’s AMA from Betaworks Studios pretty much says it all: “We’re not operating in our best moment right now.” He was referring to venture capital, but the same can be said of many of us.

However, venture capital is still open for business and closing deals. Those deals might be taking longer to close, terms are often not as founder friendly, and venture funds have had to prioritize taking care of their existing portfolio companies before making new initial investments.

As a result, while closing initial financing is normally very difficult; closing initial financing in the current climate will probably be even harder and take longer than usual. But Wilson explains why founders can expect the pace of new venture capital deals to pick up:

“When the markets are very frothy, we should try to invest at the lower end of our investment page and that when things become super bad, we should invest at the higher end of our investment pace…”

“It’s not just about valuation… The market clears out… it’s just easier… there’s less noise… it’s easier to see the good things.”

— Fred Wilson

And he reminds us that venture capital firms make money by investing the funds that they raise. They typically raise funds every 2-3 years; and there’s currently a lot of capital that was raised in the last several years that still hasn’t been invested. This means that if you have enough traction and the right business model, and if you could grow substantially faster and larger with the kind of capital that venture financing could provide, then go for it!

“It is always easy to talk yourself into the idea that the door is currently shut for you. But before you do that, I suggest you knock on it. It may in fact be open.”

— Fred Wilson “Still Open for Business

How to Start in a Downturn

“When the market falls apart, the only entrepreneurs who are going to be left are the ones who are doing it because of passion and not money.”

— Fred Wilson

It is cheaper than ever to start a business. If you have a passion for a business idea and the tenacity and means to stick with it, there’s a path to starting up, even in the midst of a global pandemic.

There are a wealth of inexpensive or free tools and resources that apply to many categories of businesses. Unless you have some fairly unique circumstances (e.g. you have had a previous exit that generated significant returns for venture capital), you’re going to need to generate significant traction on your own, before raising capital from investors or lenders.

Some founders are able to identify a product or service within their company vision that can be delivered to market quickly, with little or no up-front costs. By bringing an offering to market, they both validate their vision and, in some cases, start generating revenue. Revenue is the cheapest form of financing, so if you can find a way to generate even modest revenue in the current market conditions, then get to it!

Focus on survival over growth rate. Keep your expenses at a level that you can sustain indefinitely; and make growth bets that you can afford to lose. If you play your cards right and are very lucky, you may find yourself with a fundamentally healthy business that you can either own and operate, sell, or grow.

If you choose to accelerate your growth, remember that venture capital is only one form of financing available to early stage companies. Not every business model is suitable for venture capital. There are some amazing businesses that will never grow to venture capital scale but can still generate substantial returns for founders.

Other financing options include shared-revenue and debt. Shared revenue usually requires a history of moderate revenue. Debt, at the early stage, often requires personal guarantees from founders, so use with caution.

Whichever option you choose, if you start by focusing on generating revenue and achieving sustainability, you will be in a much better position to raise the financing you need when it’s time to grow your business.

Tips for Staying Focused

Many of us are spending an unusually concentrated amount of time in our homes, which can create a challenge for anyone trying to stay focused and productive.

"Structure, structure, structure,” advised Carolyn Thornlow.

Try to set daily work goals; but don’t forget about setting goals to take care of yourself, too: exercise, sleep, getting food and supplies, meditation, and socializing.

Analisa Svehaug added: “I find productivity deep work sessions really helpful; and once you learn the tricks, you can recreate a cave at home to get a LOT of stuff done in short bursts.”  Betaworks Studios has hosted a a number of Caveday workshops like this one.  Keep any eye on their calendar for more Caveday workshops!

And remember to take a break from your devices.

About Startup Lean Coffee

Startup Lean Coffee is a monthly gathering of founders, early employees, advisors, investors, and anyone involved or interested in joining the startup world in any capacity. Our sole purpose is to help each other improve by sharing questions and experiences. All you need to bring is your attention, curiosity, and willingness to share.

We follow a Lean Coffee meeting format, a lightly facilitated meeting where participants democratically build an agenda and discuss each topic for a fixed time, voting to continue discussion or move on to the next topic after the time runs out.

Feel free to continue conversations that were started at our meetings and start new ones on our  Startup Lean Coffee Slack workspace. Please treat our Slack space like our in-person meetings: ask questions, share interesting information, create channels.

Startup Lean Coffee is graciously hosted by Betaworks Studios. Participation is free; but space is limited. We usually meet on the 4th Friday of each month. Sign up for the next Startup Lean Coffee, which will be on Friday, May 29th at 9am.

I provide advisory and consulting services that accelerate your growth by streamlining strategy, marketing, sales, design, engineering, and operations.