By Ryan Rafols, founder and CEO of Newchip Accelerator, the No.1 remote accelerator for scaling pre-seed to Series A startups
Covid-19 shifted numerous employees to the work-from-home environment. What may have been even more unexpected, however, is small businesses being forced to raise capital from the virtual environment as well.
Alternative ways to address all types of challenges are emerging as society adapts to a new normal, and raising capital is no different. Prior to the Covid-19 outbreak, 2020 had a very robust first quarter, with nearly 2,300 deals raising a total of $34 billion.
We all know that the second- and third-quarter numbers are simply not going to look like that. But many companies – including small businesses — also understand that they must forge on, despite the incredibly challenging environments they face, to raise the capital they need.
To overcome these challenges, companies, investors and firms are all thinking about different ways to facilitate deals amid changing circumstances and economic conditions. Progressive online accelerators, including my own, have moved to virtual demo days. These events connect entrepreneurs with hundreds of VCs and private investors who are still very much interested in funding the “next big thing.” Believe it or not, millions of dollars in capital are still being raised through these funding events.
Of course, virtual fundraising for most is still a whole new ballgame, and understanding the nuanced differences it presents is essential if you want to find success. With this in mind, here are several distinct pros and cons of virtual fundraising that all startups should consider:
Raising capital often means that founders spend months on end living out of their suitcases as they travel and meet with potential investors individually. It’s a highly stressful time that can be incredibly demanding for the founders, who often forgo seeing family and friends for extended periods of time. Embracing a virtual format means that founders can pitch their startups without having to travel, freeing up more time to focus on perfecting their pitches and guiding the companies through this crucial period of growth.
Events such as virtual demo days can connect a wide group of startups and hundreds of investors all at one time, meaning founders have access to a larger audience than they might otherwise have during face-to-face events. In my experience, these types of virtual events can attract up to 200 VCs and angel investors to view your pitch, while live events may only attract a handful of players. A broader audience often increases the chances of at least a couple of investors being interested in a deal with your company.
In addition to attracting a large group of investors, virtual fundraising events make it easier to work with a global group. While it was possible in the past to travel outside of the U.S. to seek investment, it was often resource-intensive. With no guarantee that it would pay off, I found that many U.S. startups simply preferred to limit their fundraising activities to the U.S. Virtual formats help level the playing field because everyone, including investors around the world, can participate.
There are now resources available to help with virtual fundraising. Virtual accelerators have emerged to help entrepreneurs prepare to raise capital more efficiently. For example, there are programs that can help you identify ways to optimize your business performance to prepare for successful virtual fundraising. Look for programs that offer one-on-one mentorship, a focus on negotiation skills and strategies, and broad industry knowledge to help you understand how your company fits in and should communicate its future to investors.
The biggest drawback to virtual fundraising is the lack of in-person chemistry. Believe it or not, chemistry is real in dating and in business — there are just some people who are able to walk into a boardroom and turn on the charisma and charm needed to win people over. Of course, achieving this effect is much harder on video. Research has shown time and again that nonverbal communication plays a huge role in our ability to judge character and inspire confidence. Much of this essential nonverbal communication is muted online, even with a video connection.
However, it is not impossible to attract attention through your personality. Just brush up on your video etiquette skills, and ensure you are presenting from a location that evokes the feelings you are trying to inspire to put your best foot forward.
For startups that normally offer a sample or demo of their product or service, virtual formats can pose a logistical challenge. Since the investor audience won’t be able to participate in real-time demoing during the pitch, find a way to work around this beforehand, if possible. You can try sending out samples to interested parties, or you can demo the product from your location with a co-worker. While this may be a more complicated process virtually, there are ways to work around it if you plan creatively.
Founders must bring even stronger visuals to their presentation in a virtual environment. Remember, people eat with their eyes first. Virtual formats, by their very nature, require an emphasis on visually impactful material. If your materials are plain, uninspiring or unable to fully draw in your audience, then you may need to invest in some great graphic designers, video producers or even animators so that your business concept can fully come to life.
At the end of the day, virtual fundraising remains a viable option as many industries look for innovative ways to continue to find investors. Of course, anyone seeking capital should carefully consider the challenges and advantages that this format involves. Once you master it, you will be able to identify strategies that work for winning investors so you can continue to develop and grow your brand today and for years to come. So, turn your webcam on and start pitching!