Is it possible to raise a startup capital in Uncertain Times?
The world is constantly changing and, perhaps any startup and investor would agree that every new project is a risk.
About 94% of all startups do not survive their first year only because they don't receive enough funding. This is a sore spot for beginning businessmen in better times, and even more so in unstable ones.
But no matter how difficult it is, even now it's possible to raise sufficient startup capital and launch a viable project.
What is a startup capital?
Let's start with the simplest. Startup capital is an investment in your project that you can spend on everything related to the business, from marketing to development. Most often, startups get these investments from outside, but at the initial stages it is their own resources.
Funding usually has several rounds - series of investments that increase startup capital. As the business tends to expand over time, each round of financing encourages startups to more growth.
Funding starts from initial Pre-Seed / Seed stages and increases with each round as the business expands. In addition, in the later stages of startup development, each round takes longer.
How to raise a startup capital?
There are several ways to raise a startup capital to launch a project, such as venture investments or angel investors. But the crisis is changing the situation on the market, and getting financing by the usual methods has now become much more difficult, since the economic decline in 2020 imposes even more risks. Data from Statista shows how current events can affect startup development, and only 0.7% of all startups are forecast to have no negative effects.
Therefore, the probability of increasing the initial invested capital shrinks almost to zero, forcing startups to look for new additional opportunities for replenishing startup capital.
Where can you go to raise a startup capital in unstable times? Let's talk about this further.
1. Disaster SBA assistance
If your startup is going through difficult times due to the economic crisis, you can contact the US Small Business Administration, which works directly with the local government, to provide a loan to affected businesses for returning their working capacity.
This financial loan has a small interest rate: for small businesses it is 3.75%.
2. Amazon’s Neighborhood Small Business Relief Fund.
Is your business in the Seattle area? So you can get help from the Amazon’s Neighborhood Small Business Relief Fund, which was created to help small businesses hit by COVID-19 in or around Seattle area. Only companies with less than 50 employees can receive assistance from a fund with a capital of $5 million.
3. National aid for small businesses
We all ended up in the same boat, and the government is moving towards small business. In the United States, the deadline for tax payments has been postponed. In some European countries payment is made for compensation of salaries to companies, whose employees cannot work during quarantine.
The government is introducing more gentle tax rules for private entrepreneurs and small businesses, so if you have nothing to pay your workers with today or are experiencing other financial difficulties, contact your local administration.
4. Facebook Small Business Grants Program
Facebook program pays out assistance not in form of subscribers, but in real currency up to $100,000. These payments are intended for small businesses affected by the COVID-19 pandemic.
30,000 businesses in 30 countries where Facebook is functioning can get this money. Participation in the program can also help you draw the customers attention to your product. Besides all this, Facebook has a place where you can find more resources to stay afloat.
5. Ventures investments
These are professionally managed funds that invest in startups with great potential. Even in uncertain times, there are venture capitalists willing to take risks and invest in a potentially profitable business. So, if you manage to interest them, you have every chance to increase your startup capital.
During difficult periods like these, the main thing is the ability to adapt to the situation.
Mark Roberge, a former CRO Hubspot, says:
“In a weak economy, “nice to have” offers are on the sidelines. If a product or service does not solve a critical customers problem, no one will buy it. A weak economy forces any organization to find its “must-have” value proposition.”
If you're only starting your business today, this may be your finest hour to raise a startup capital because of the digital business transformation. In addition to economic decline, there are also areas on the market that are profitable in the current crisis times, so they will seek technological solutions. According to Statista research, these are: delivery services and grocery stores, medicine, online sellers, building materials and other similar industries, such as online education.
Tip: look for partners among companies that work in your chosen field. Perhaps this way will help you solidly raise the startup’s capital. If you choose an industry that is still gaining popularity due to the crisis, it is likely that there will be a company interested in partnering with you.
Creating something that will be unique and, moreover, necessary in the market right now - is your key to success. A disruptive innovation is what will help you to raise a startup capital, provide product demand and help you be on the wave in a storm.
Timo Argillander, Managing Partner and Co-Founder of IPR.VC, says:
“The forecasts for the future are very unclear, and this will slow down funding and decision-making processes. However, everyone is talking about something disruptive right now, and only such ideas can lead the market.”
How to survive in the storm and preserve a startup capital?
Crises stimulate innovations, so we get the best in the worst of times. If you learn to adapt, to be successful where others have failed, you will get huge advantages on the market. Changes will push your potential customers to look for something new, and all you need to succeed is to provide them with what they want. In addition, there are several basic steps you can take to survive crisis situations.
1. Competent financial management.
Communicate with banks and suppliers about the possibility of extending payment terms, cooperate with banks only on conditions with low interest or even with its absence, develop a survival plan to save money as much as possible. If an investor sees that your financial position is strong even during a crisis, this will convince them to invest in your project, therefore boosting your startup capital.
2. Choose reliable IT partners.
This is a difficult time for business, however, even from this time you can get a benefit. Choose reliable IT partners to be confident in the future, even if current situation in the world is far from predictable and stable.
A good technology solution can help you attract an investor now. Look for a company that offers an IT consulting service which allows you to avoid mistakes due to competent planning. IT consulting also allows you to think through the product so that only the necessary functionality will be present. It will also help you develop a quality MVP that will increase the chances of a startup being noticed by investors. Collaborate with those who are ready to be not just a technical implementer of the project, but a true partner.
3. Be honest about your position.
All that people talk about in unstable times is unstable times. Be frank about your position on startup capital, difficulties in the economy and the situation itself with your employees and with your clients.
Honesty attracts everyone and investors are not an exception, therefore can be an excellent PR move.
We also suggest you watch a video of CEO Drive Capital talks about the 8 steps that startups need to take to survive the corona-crisis.
Inka Mero, founder and managing partner of VOIMA VENTURES, advises startups::
“First, talk with your team, board of directors, and investors - it's better to over-communicate than under-communicate. This is also a great time to pick up the phone and call your customers! When hard times come, business relationships matter. It is important to understand how you can get together with your customers and ensure business continuity. Finally, many of today's unicorn soared in times of crisis - lack of resources can be a source of creativity and pivoting.”
Everyone breaks through the crisis in different ways. Someone needs to dive into the thick of things in order to emerge from there as a winner, someone, on the contrary, tighten their belt and sit out. It is difficult to raise a startup capital now, but it is possible if you choose the right path for yourself. This is the time for new successful undertakings and we are ready to help you with the technical part of your future project.