Many startups in Ontario are currently navigating an altered investment landscape in 2022. This post will explore how COVID-19 has impacted early-stage investing and fundraising, and what options you should consider as a result.
People exiting urban cities, people exiting careers and people exiting early-stage investing. With all the flux, startup founders are left wondering where to look for early-stage funding after the fallout.
It helps to understand why some people exited early-stage investing: losses in stock market portfolios and even their investments in other ventures that suffered losses, either or both, impacting their overall net wealth.
Even when investors didn’t necessarily lose money due to COVID-19, some are being conservative about the lasting impacts to markets and industries and feel too uncertain to make bets on the market analysis and opportunities ahead.
In 2020, there were significantly fewer early-stage investments, fewer active investors and more inactive investor communities. The National Angel Capital Organization’s (NACO) annual report details what investing was like in 2020, including identifying that mean company valuations were lower than in prior years.
While we await 2021’s final investing tally, there is evidence that investment activity at least met, or more likely, exceeded 2020 levels. As angels became comfortable with the new investing realities of Covid-19 (use of online meetings, revised growth sentiments), active investors appeared to re-engage in the marketplace, providing encouraging signs for companies seeking capital.
Entrepreneurs seeking angel investment should recognize that organized angel investment meetings and particularly in-person investment meetings remain impacted by COVID-19’s presence, and as such, are likely more difficult to access. Considering this, entrepreneurs should adjust expectations and act accordingly in this environment.
Mindset will play a heightened role during more uncertain times. Risk-aversion and uncertainty will cause investors to question early-stage ventures’ prospects and investment outcomes more closely. For a new revenue generating company with modest growth, investors will likely ask for a lower valuation than what they might have asked for pre-Covid. Furthermore, investors can be expected to ask for more flexible or demanding terms. And, more than ever, investors will expect founders to have used at least some of their own capital to finance their company’s early operations. However, having the mindset to accommodate such requests while introducing opportunities to reward the entrepreneur’s team when milestones are achieved, will facilitate the chance of an agreement while incenting all parties to benefit from the investment.
It should be noted that, despite difficulties that currently exist in the ecosystem, there will always be “HOT” companies; those able to take advantage of the current investment and industry climate. These companies may, in fact, have more choice for investors who are seeking de-risked companies, improving their valuation prospects.
If you are actively fundraising, you will be expected to have carefully evaluated your company and are prepared to explain:
The Haltech team wishes everyone a great start to 2022 and we look forward to supporting our founders!
Image retrieved from Unsplash.
Programs & Operations Manager | Haltech
Investment Readiness Advisor | Haltech
Founder | Cassio Capital Advisors
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