What’s New in the European Startup Scene? Funding Trends
Is it the right time to launch a startup amid pandemic? What should startups do to survive and even thrive? What are the latest trends to keep an eye on?
When the spread of the coronavirus was declared a ‘pandemic’ by the WHO, we could experience a slowing down of funding announcements. In fact, March 2020 was the least active month for funding rounds in Europe in two years — yet, according to the venture capital investors hanging out on Twitter, they’re all still ‘open for business’.
A slowing down of deals
As expected, many venture capital firms are leaning towards a continued slowing down of activity (while preparing to support their existing portfolios), which may persist in the rest of the year.
When considering round size, early-stage startups looking for pre-seed or seed funding are currently the worst hit group, according to the investors asked by eu-startups. The investors asked by sifted.eu put rather the companies at Series B round to the worst position, given the limits of European investment market, with US investors expected to stay away from the European market for a while.
There is one thing, in which everyone agrees:
Great entrepreneurs building great businesses will continue to raise capital to grow throughout the pandemic and after it – as highlighted by Oliver Richards, Partner at MMC Ventures.
Survive and thrive
When it comes to presenting your business to a venture capital fund, it’s essential that you address the current crisis, and how your startup has pivoted, adjusted and re-mapped its growth strategy, considering multiple scenarios and outcomes.
Echoing this sentiment, Matthew De Jesus, Principal of Talis Capital, added:
what we want to know is: are you just in maintenance/survival mode, or are you in survive and thrive mode?
More cautious valuations
Valuations are likely to be lower, reflecting the new market conditions. Jan Miczaika, partner at HV Holtzbrinck Ventures suggests that valuations will likely return to a level they were maybe three, four years ago. However, this might even put startups in a better position for their next funding round.
In fact, there are examples of founders bringing the valuation down themselves, in order to be in a better position for what comes next.
There are no “off-limits” sectors
No sectors are ‘off-limits’, not even travelling or hospitality. Investors are still investing for the long-term. However, they’ll be paying close attention to what growth looks like and where it comes from over the next few months.
Rather than looking for specific industries, some investors say they are looking for the most resilient teams, let’s say ‘recession-proof businesses’.
Good news for impact ventures
The perceived value of startups with a social or environmental impact is rising, potentially meaning a new dawn of recognition for social enterprises.
With this in mind, if you are running a social impact startup, that is Series A or above, this could be your time to approach venture capital funds with an impact focus.
Even if your startup doesn’t have social or environmental impact built into its structure, there’s also a wide appreciation for continued innovation that doesn’t stop, no matter the circumstances.
There may be industries subject to more disruption, like digital healthcare, education and food delivery companies. And also, there may be sectors, the future of which is at serious risk, e.g.: coworking spaces and office rentals.
An interesting question is, how consumer behaviour will change. Can we expect that catering industry will have the best summer ever because everyone after quarantine just wants to go out, or will we have turned into social hermits? Will we stop going to fitness clubs and stop going to school? We cannot know it for sure.
With all this in mind, many venture capital funds are aware that while they are certainly ‘open for business’, now may not be the right time for many startups (depending on their size and sector) to look for funding. Instead,
they advise to preserve cash as much as possible while keeping an eye on maintaining motivation for the staff and focus on product development, branding projects, re-thinking supply chains, etc. so that once the time comes, startups can come back even stronger.
It is a great time to just invest into the virality of your product and figure out what engagement you can see from your power users and how you shift average users to power users over time.