COVID-19 has already transformed the fabric of how we live and work. To more quantitatively understand its effects on the specific segment of work we focus on - investing in startups - the Plug and Play Ventures team polled founders currently fundraising. Some of these founders are ones we’ve invested in, and others we’ve been connected to and know well through some capacity in our network. While most of the founders polled have their companies based in the U.S., some are located in Europe and Asia. Hopefully, the findings below lend some clarity towards how both entrepreneurs and investors have reacted to the pandemic.
Across 61 responses from companies who were fundraising, the data primarily centered around Seed and Series A companies.
From this sample size, it’s clear that the pandemic has slowed fundraising efforts for most founders.
Part of this slowdown is because a significant percentage of investors, according to these same founders, are already beginning to pull their soft commitments.
In response, entrepreneurs have adopted some of the following approaches:
54% are postponing fundraising
42% are seeking out other forms of capital (e.g., grants and debt)
37% are aiming to close with less in total commitments
26% are seeking out-of-network investor introductions
26% are asking current investors to commit more
18% are lowering their valuations
This strategic response data implies a few notable points.
First, a substantial number of founders are postponing fundraising. They seem to be doing so in the hopes that by waiting and gaining more traction, their fundraising process in the near future will be smoother. We hope this to be true but this primarily depends on mitigating the pandemic and its economic consequences, which may not occur within this year. Thus, postponing fundraising may leave the founders to raise in an even more difficult environment. But optimistically, using that additional time to gain traction and show growth to investors who are similarly trying to figure out internal processes may create much smoother fundraising journeys.
Second, alternative forms of financing may become more attractive, particularly depending on the strategic decisions on new investment appetite VCs make at this juncture.
Holistically, the data suggests that the pandemic has already compounded the difficult journey of creating a great company. But, there are several early signals to be optimistic about. The majority of investors are honoring soft commitments, most startups are deciding to keep their valuation targets and not negotiate against themselves at this juncture, and several have used the exigencies of our new world as reasons why their investors and customers have to be more transparent and decisive in their interest levels. These signals clarify that as we venture further into this pandemic, the strategic choices we collectively make will determine the extent of positives and negatives to emerge for the startup community.