As part of SaaStock Remote 2020, I spoke on a panel yesterday about something that’s top of mind for many early-stage SaaS entrepreneurs right now: is it possible to raise money from investors in the current environment?
At Accel, we love SaaS and have invested globally close to $4B in more than 230 companies over the last 35 years. Many great SaaS companies have emerged from the past two economic downturns. Some iconic businesses in our own portfolio like Atlassian or DocuSign, emerged off the back of the dot-com bubble, and Slack, Dropbox, Cloudera and CrowdStrike were founded after the 2008 financial crisis.
Now is actually a good time to raise money and, from what I’m seeing, the financing environment in Europe is quite active despite the lockdown. We’ve closed three deals in the past couple of months, one of which was done from start to finish remotely. We also have several portfolio companies which have raised rounds recently or are in the process of doing so.
My response to the question “Can I raise money now?”
is without hesitation "Yes, you can”.
Here are five tips to make the process faster and shift the odds in your favor.
Before starting the fundraising process
1. Do the hard things first
If you need to readjust your plan or restructure, do it first and talk to investors after.
The current crisis is different from previous ones, because its impact has varied greatly across different sectors and businesses. On the software side, it ranges from:
A major boost for companies in healthcare (Doctolib, for example)
Little to no impact in categories like automation (think RPA with UiPath or process mining with Celonis)
A moderate impact on most other SaaS categories: 10-20% reduction in new business
A harder impact on companies selling into verticals impacted by the crisis - like travel or retail - or segments which are more vulnerable, like small businesses
Across our portfolio, most companies have had to readjust their plan and reduce costs. This is the work you need to do before you consider fundraising. Even if you’re growing fast today, investors need to see that you are well set-up to tackle the unknowns in the upcoming quarters.
2. Clearly define your value proposition and the ROI for your customers
As we enter a challenging economic environment, buyers will look for quick ROI.
Overall, Q1 was a good quarter, but the economic impact of the crisis will likely be stronger in the coming months. As enterprises accelerate their digital transformation, they will most likely see budget constraints and need to prioritize accordingly.
In this context, the most successful companies will be the ones that are able to show a strong ROI to their customers. If you have not built an ROI calculator for your sales team, now is the time. It will make a big difference.
Make it specific, and the more factual inputs the better. You can also differentiate by vertical or size of customers. Use your creativity but being able to show a 10x return on investment will be the key to success in the coming months.
3. Be very selective about the funds/angels you approach
Focus on existing relationships and funds with expertise in your area, as making decisions over video is hard and talking to the right people makes it easier.
In the current context where travel is limited or non-existent - at least for now - investors have to make their decisions purely remotely. In the same way it will be difficult for you to assess an investor over a video call, it’s also hard for investors to assess companies and founding teams.
The two elements that can make this process easier are (1) if there were interactions in person before COVID and (2) if the investor has a deep knowledge of your area. It’s therefore crucial to be selective and filter the VCs you are talking to along these two criteria.
Focus on the people you have met before that you liked; and screen investor websites to target the right funds or partner with expertise in your area. It will make the process much smoother.
During the fundraising process
4. Share good news soon and bad news sooner
Trust is key. The more you communicate during the process, the better.
We signed a term sheet with a company a week before the world locked down. This was not an easy situation for me or for the entrepreneur. Most of the due diligence conducted beforehand seemed irrelevant now, and we needed to reassess our investment thesis to see how it would work in this new world.
I was lucky to have spent a lot of time in person with the team, and I knew the trust we developed in the previous few months was not going to go away. But that trust, which is a critical part of any investment, can easily be broken with a lack of communication leading to misunderstandings.
We closed the deal a few weeks later and the most important factors for me throughout were the regular updates I had from the founder, and his transparency about everything happening with the business. The good, but most importantly, the bad as well.
There is no such thing as over-communication right now, and it is never a good idea to hide or delay bad news. If you show the investor that you are transparent, you immediately have that level of trust which will make both sides more comfortable and on the same page.
5. Be patient: it may take more time than usual
In today's world, where every day brings new developments and perspectives, things take more time.
We live in uncertain times. Partnerships are asking more questions, as they are naturally more cautious about deploying capital. Don’t be discouraged – just know you might need to drill down further into certain aspects of the due diligence than you would in a different climate.
The current reality is not going to change anytime soon, but don’t lose faith in the process or forget that investors are looking to back the next generation of iconic SaaS businesses to emerge from this crisis.
Stay on course, be patient and good things will happen.
I hope these tips are helpful and good luck for the fundraise. See you at SaaStock Remote 2020!
Any question, please reach out on Twitter @pbotteri