Unless your business model is well positioned against COVID-19, it is not a great time to raise capital. But if you increase your list of potential investors and raise your level of due diligence material, you stand a good chance of pulling it off, Point Nine Capital Partner Christoph Janz said in a SaaStr webcast.
Cloud-based B2B SaaS companies are generally well positioned in an economy defined by the pandemic because companies are flocking to services that help them function remotely. Consumer-facing virtual health and education companies are also well positioned.
These companies shouldn't face too much trouble attracting investors, but if your company isn't similarly well positioned and you need a capital infusion to survive, you can improve your chances if you start with a much longer list of potential investors than normal.
"You just have to expect you'll get more 'nos,'" said Janz, whose company was an early-stage investor in Zendesk and Typeform, among other B2B SaaS companies that have made it big.
The pandemic has ushered in at least one positive for capital-starved companies by eliminating roadshows. As a result, you can get in front of far more investors quicker because the meetings are virtual.
"There's no travel, no coffee meetings, no dinners," he said. "The process is a lot more efficient, so you can start with a longer list and get through it more efficiently."
One company head told Janz he was able to secure capital two weeks earlier than he expected after having 7-8 virtual meetings a day.
For these meetings to go well, though, it's crucial to do two things right: build trust and present data in a way that anticipates what investors will want to know.
The way to build trust without in-person meetings is to make investors feel like they're getting an inside look at your operations. Send them your company newsletter and let them access your internal dashboards, key performance indicators (KPIs), and your other analytics databases such as ChartMogul.
"Transparency builds trust," Janz said.
You can also invite them to do a whiteboard session with you, maybe to develop a go-to-market strategy or a hiring plan. "It gives both sides a chance to get to know each other better," he said.
You also want to create a data room in which investors can roam freely so they can access the most important KPIs. But for this to succeed, all of the data must be there from the outset, and it must be presented in a way that's obvious or self-explanatory.
"A great idea is to provide a narrated version, like a Loom of your deck," he said. "You have fewer opportunities to convince people in a meeting, so you can't just wing it. Your material as a product is more important than it previously was."
What's more, the core of your presentation, the slide deck, has to be better than it ever had to be before, because you won't have in-person chances to paper over flaws. "You need to have a killer deck and killer due diligence material," he said.
You might even create an FAQ or similar document to preempt as many due diligence questions as possible, he said.
And don't sugarcoat anything, Janz said. Be upfront with negative changes in your key metrics, including churn, conversion rates, lead generation, pipeline development, sales cycles, pricing, payment terms, and customer behavior. "You need a clear assessment."
You also need a plan for getting through the crisis, even if the uncertainty requires you to have multiple scenarios. "No one knows how the next 12 to 24 months are going to look. But you should have done your homework by now," he said.
"Try to put yourself in the investor's shoes," he said. "There's such a strong need on the investor side to really get to know you, get to know your colleagues and build trust before they make this decision to invest millions or maybe tens of millions of dollars in your company and dedicate a significant part of their time for many years."