‘Lack of visibility has its advantages’
Since alternative finance took off a few years ago, it has never been easier for new businesses to raise capital. Aside from venture capital, there are a myriad of options from traditional bank funding, angel, friends & family and crowd funding, not to mention the many other hybrid variants.
Key to issues of raising capital is a company’s stage in its life cycle; venture capital is primarily concerned with businesses that are early stage and hence potentially inherently more risky than established late-stage revenue producing companies further along in their journey.
The lists of known unknowns for the world economy are currently innumerable. Macro projections and their glacial pace prognostics for the future are being hyper accelerated. As such existing business models and routes to revenue are being thrown into turmoil, company forecasts upended as shifting consumer trends throw even the most Teflon coated plans into disarray.
Total investment in start-ups has fallen by 50% to £1.6bn in the past three months compared with the same period last year. Yet companies raising capital in the early stage/seed funding is only down circa 10%.
Life Cycle Risk; Early Stage Edified
In a recent survey (US) conducted by the Venture Capital Journal, nearly two thirds of respondents said they have seen early stage valuations drop 20–30 percent. Perhaps a harbinger of more ‘sensible’ valuations and a potentially required development in the evolution of venture financing.
Clearly more so now, in 2020, than ever, a flexible, malleable approach around a core focus is a pre-requisite for all would be start-ups.
As such, companies in the seed stage, many of whom are yet to produce revenue or fully identify their paths to market are ideally placed to take advantage of the current landscape. It’s a richly rewarding time for organisations afforded the luxury to able to refine and navigate the pitfalls befalling slower moving larger (and commensurately valued) competitors who lack the ability to quickly cut cost and pivot. Speed boats and tankers…
One can certainly argue that in a ‘new normal’ pandemic world, being lean, nimble and early in the life cycle of your growth can yield outsize opportunities — with less ‘risk’ than is currently priced…
In the kingdom of the blind, the one eyed man is king.