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Raising funding during COVID-19

 

Three founders joined Barclays to talk about their experiences of raising funding during the pandemic, all working remotely and juggling the challenges of lockdown at the same time.

Michelle Kennedy, founder and CEO of Peanut; Amber Atherton, founder of Zyper; and Stefano Vaccino, founder of Yapily, take us through their own experience and their tips on pivoting during a crisis.

  • Some investors are still looking to allocate funds, even now
  • Concentrate on one chosen metric and grow it as evidence of durability in the crisis
  • Now is the time to focus on customer retention and loyalty.

Raising funding and juggling real life during Covid-19

“When the year started, we weren’t planning to do our A-round in Q1 at all,” Kennedy says. “But the market was excited by us and we were being approached, so we made an in-formed decision to go early. We met investors in February – I couldn’t ever have imagined that we would all be in lockdown a few weeks later.” The whole process was carried out remotely through lockdown, but Kennedy found that having had face-to-face interaction be-forehand was helpful.

Her company Peanut runs a social network for mothers and Kennedy realised that from a user perspective, her product could be bolstered by the crisis as more women looked for support from the community. Running her team remotely, however, had challenges. “Some of our team are parents, and that means that we were trying to close a fundraising round with our children at home, all while trying to run a business. But it’s the same story with my investors. Everyone is trying to get used to the new world,” she says.

“Life doesn’t just stop. It’s sort of the definition of a founder’s role – you don’t stop your life, but ultimately everything just becomes part of it,” says Kennedy. “I had my baby a week af-ter I closed a round of funding last year”. Vaccino, who was ill with Covid-19 as he closed a round of investment, looks on the bright side – “ it’ll all be a strange memory in a couple of years.”

Attracting investors

“We were fortunate in that the crisis didn’t stop us, but in general it’s important to bear in mind that there is money out there and that deals are being made,” Kennedy says. “It will be about the strength of your business in this market (and if you can raise, then so much the better) but if it was in your plans to raise at this time and you’re still seeing growth then you should take the opportunity. There are still investors operating, with funds that they need to distribute”.

Atherton agrees that once the dust settles, investors will still be allocating funds. “This is a really good time to double down on your team”, she says. “Choose a metric that you’re go-ing to concentrate on and move it 20% or 30%, and if you can show that not only are you surviving in this time but you’re growing and thriving in it then you’re going to be a hugely attractive investment opportunity”.

“My advice would be to focus on those needle-moving metrics and milestones that you can communicate,” says Atherton. “Make a list of people that you want to speak to who would be interested in what you’re building, and explain the milestones you’re hoping to hit. Un-der-promise and over-deliver on those milestones”.

“I think as a founder, we are always raising capital,” says Vaccino. In his case the company never opened a funding round, but had ongoing conversations with potential investors that it had already built up a relationship with. “Our investors have been extremely professional and founder-friendly, so I’ve been quite lucky in having had no nasty surprises. I’ve heard stories of last-minute changes, but we didn’t experience that.”

Some founders have had different experiences, including investors who slash a valuation price as founders look for money to stay afloat. “Everything is a negotiation,” says Atherton. “Don’t just speak to four or five investors but have a pipeline of 45, 50. And don’t undervalue yourself – maybe don’t optimise for valuation on one side. If you need the cash to stay afloat then seriously question how much you want to optimise valuation at this stage of the business.”

Kennedy agrees: “If you can, take less and go out when you’re stronger. You don’t have to take the amount that you really want if the terms aren’t the ones that you really want. It’s better to own less of something huge than lots of something that doesn’t exist anymore.”

Looking to the future of investing

Atherton’s company, Zyper, is a SaaS business. Her expectation is that those in similar fields will predict less growth from new customers, but double down on their existing clients. “Make sure you have relatively low churn,” she says. “This is the time to think about loyalty and retention, because if you can build that now it’ll have a ten-times greater effect than building it at another time.”

“Really make sure that your product is essential for your clients’ business,” Atherton says. “Looking forward is the future of fundraising, and perhaps investors will be asking one day whether your business is pandemic-proof.”

“I think in future the approach to funding will change,” says Vaccino. “Most founders think about planning for more or less an 18-month cycle: 12 months of growth, six months of be-ing out raising. I think that six-month period will extend a little bit more. In general we al-ways say raise money when you can, not when you need, and I think this all proves the va-lidity of that expression.”

Kennedy agrees, but adds that “if you can avoid going out to raise when everyone else does – when we get through the worst of it, so to speak – it will be much better. There will be a flurry of activity when everyone goes out to raise having ridden the very last part of their runway. If you have the ability to hold tight until at least Q1, you’ll hopefully avoid that ini-tial flood of activity when investors will be able to be a little ruthless about where they put their money. You’ll be in slightly calmer water.”

Watch the full event replay below.

 


 

 

Speakers: Michelle Kennedy (Founder of Peanut), Stefano Vaccino (Founder of Yapily) and Amber Atherton (Founder of Zyper).

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