Building Trust With Investors Amidst COVID-19

Raising money just got a lot harder. According to CB Insight’s latest analysis, startup financing is about to take a giant hit.

As you can see below, CB Insights forecasted that Q1’20 funding would ultimately be $67B (down from a projected $77B), mainly due to the Coronavirus outbreak. This is a drastic 30% decrease from Q1’19 when the funding levels were $87B.

And, below, it looks like the number of funding rounds will decrease 20% between Q1’19 and Q1’20 from 9,284 to 7,337.

This means that having a solid game plan is going to be necessary to raise money. To build trust with your current and/or futures investors, it is vital that startups and growth-stage companies do the following immediately with any investor (current or new) you’re talking to about investing in your company —

Remind Investors of Your Status Before COVID-19

Your investors are busy, especially now. They have multiple startups they’re looking at so it’s incredibly important for you to take the time to remind investors how your company used to look. You’ll want to share something like the following:

• What products you had already deployed before COVID-19
• What products were about to be released before COVID-19
• How your revenue and cash looked before COVID-19
• What your investment forecast looked before COVID-19

You may think that your investors know this, and they probably do, but it’s nevertheless a good reminder to provide some sort of benchmark for where you were before the Coronavirus outbreak.

Describe Your Current Reality

Be incredibly authentic with your investors about how things stand. Using the same framework above, you will want to tell your investors the following:

• The status of the products you launched before COVID-19
• The status of products that were about to be launched before COVID-19
• How your revenue and cash look today
• How your investment forecast looks

This will automatically build additional trust with the investor. They’ll know that you’re telling them the truth and will ensure that everything you’re about to say (below) will be received incredibly well.

Share What You’ve Done to Reinforce Your Business

The world has changed. Customers who were going to pay you may not be able to pay you anymore. And, we have no idea how long COVID-19 will play a role in our lives, which is why it’s vital to make sure your company is on solid footing. Rich Augustyn at Endurance Capital put together a detailed checklist to ensure your company is solid. I highly recommend reading his checklist, and telling your investors what you’re doing for each of these points. Sharing this information shows that you’re wisely thinking about your company. Here are a few of his high-level points you should be sharing with your investors so that they know what steps you’ve taken to —

1. Manage cash & liquidity. Investors will want to hear about activities like extending payables, drawing the full cash amount from lines of credit, asking your lenders to defer principal payments, and accelerating your receivables. These are are all things you should be considering right now. You may also want to share any dashboards showing your daily/weekly revenue and cash, if you feel comfortable.
2. Control your costs. You’ll want to share how you’re making decisions over the coming few weeks on which members of your team to retain, lay off, or furlough (temporary, unpaid, leave of absence). Also, let them know if you’ve frozen non-essential spending, considered compensation reductions, and how you’ll continue to reassess costs and renegotiate prices with vendors/service providers.
3. Ensure your communication is excellent and consistent with your employees, board, lenders, suppliers, and customers.
4. Create a new business continuity plan. Share what plans you’ve made to extend remote work for months, and your contingency plans for mission-critical personnel, IT support, and vendors. Remain aware of all government and other emerging policies.

Share Where You’re Going With Your Products and Priorities

Now that you’ve created some calm with investors, you’ll want to let them know where you’re heading with your products and priorities. Now, more than ever, each of us needs to take a realistic look at what products we offer to remain relevant for our customers. Not only will this help us keep our jobs, but it’s also the most helpful thing we can do to support others in this unusual time.

After calling each of your clients and asking them what they are working on, each of us should design a new “Coronavirus Job Description” for every member of our team. It will guide how we show up for our clients and creates a roadmap to understand what we should be prioritizing on a daily and weekly basis. You should share and send a high-level version of this to your investors so they can understand what products and priorities you now have.

Tell Investors You Want Them — As Investors

Now is the time to appeal to the investors’ hearts and minds. Most investors understand that this is a hard season. And if you’ve told them everything above in an authentic way (i.e., where you used to be, your current reality and where you’re going), and it’s a positive story, I can personally attest from my experience that they’re going to be interested in your success.

Then, tell each (vetted) investor that you want them to be an investor because you know that they’re “the type of investor who knows how to navigate environments like this and would love their help as you build your company.” That way, they know that you’re moving forward, have a strong plan and are looking for investors who can provide value during this season.

Let me know how your fundraising goes.