What does today's investment climate look like?
For many years, investors have flocked to startup companies' investment rounds, with one goal - to find the next unicorn. Investment companies, angels, and VCs stood in miles-long queues to find the next big ideas that would revolutionize entire industries. But then it turned around. Now we have been forced to learn completely new words, which for many entrepreneurs are completely foreign at present. Recession, burst bubble, investment halt, shaky world. Yes, several pessimistic terms, phrases, and concepts that we can now read about in the media describing the current situation. So how does it affect the innovation climate in general, and startup investments in particular?
It is probably not many who have escaped that it has become a tougher investment climate now, compared to a few years ago. The wind has turned slightly, and it is not uncommon to hear that investment discussions are fewer, take longer or are completely put on hold in anticipation of better times. There are many reasons, but to summarize it in one word, it is about uncertainty. If there is concern that the economy may go downhill, or if there is volatility in the markets, investors simply tend to be more cautious about investing money. In this text, therefore, we explain what an investor nowadays values most, what a startup entrepreneur should consider, and what other financing options one can seek assistance from.
What is important in an investor and what should entrepreneurs consider?
Before the market began to cool down, there was essentially only one focus - growth. The hockey curve on the pitch deck would be so exponential that it would give you neck strain when your gaze moved upwards, upwards, upwards. Now the neck can rest as the focus should now be on a completely different key metric - profitability. A tougher investment climate means that investors are usually more picky and selective when it comes to which companies they choose to invest in. Demonstrating a profitable and well-functioning business can therefore help convince investors to invest in your company. More specifically, investors value that you as an entrepreneur:
Showing a strong business model.Investors are looking for companies with sustainable business models and a clear plan to achieve profitability. Make sure you have a well-thought-out business plan that includes costs, revenues, and long-term sustainability. Ideally, you are already running a company that shows a positive result.
Focuses on the market:Show that you have a clear understanding of the market and how your company fits into it. Present a well-thought-out marketing strategy and clearly demonstrate how your product or service is competitive.
Have a realistic financing plan:When the investment climate is tougher, it can, as stated, take longer to secure financing. Therefore, have a realistic plan for how you will finance the company and survive in the short term with the resources you have.
In addition to the above points, it is equally important that one physically resides in an environment that benefits them, both as an entrepreneur and as an individual. When running a startup becomes more challenging, sometimes an extra boost is needed to regain motivation. Examples of such places are incubators, which provide startups with access to mentors, resources, and networks that can help drive their business forward. Another example is Yuncture House, which will be a place for entrepreneurs - individuals and companies. A creative, innovative, and welcoming environment with a strong passion for the community. We want to describe it as a workplace with extra everything - activities and events, rage room, power nap room, studio, exercise, food, networking, and much more! The goal is to fulfill all the needs an entrepreneur has and for our members to not have to leave the environment if they don't want to - everything should be available here. Are you curious about our concept?
What other financing options are available?
Sometimes it can be beneficial for a company to complement with other types of financing solutions and there are several reasons why one does it. For example, one may not want or need to be further diluted (lose ownership shares) by bringing in an additional investor. Another reason, which may not be uncommon in the current situation, is that one's investment round is not fully subscribed. How do you then satisfy your investors and raise enough capital to grow? We list some examples below.
A convertible
A convertible is typically classified as a type of loan, where the owner of the convertible has the right to convert the loan into shares in the company. Convertibles are a way for companies to raise capital without having to give away ownership stakes by giving investors the right to convert their investment into shares in the company at a later date. This happens at a predetermined price and time. However, you should keep in mind that you will be diluted if the loan is actually converted into shares.
Most often, you have the opportunity to apply for capital from actors who distribute so-called grants. Vinnova, Tillväxtsverket, or VGR are examples of actors financially supported by the government, and whose task is to distribute money to projects in order to help in an early stage. This type of financing is a very good alternative since, for example, you do not need to "give up" ownership shares. When applying for these grants, it is important to be clear, concrete, and not to wander off with too many words. If you receive one or more grants for the company, it is also important to inform an investor when you finally get one. It is in fact a high-quality stamp to have received grants from other sources. An external party has verified your idea, which indicates clearly that your company is on the right track.
Bank financing
Bank financing is a traditional solution offered by banks, for example, to lend capital to your company. This type of financing is potentially more difficult to obtain in the early stages of a company, especially in these times. Before the meeting with the bank, you must have a good understanding of the current state of the company and what you will do with the potential money borrowed. However, if you do receive capital from a bank, it is also a very good indication that your company is doing something right. Additionally, it can be very important to have a good relationship with the bank in the long run for the company's journey.
Finally, we just want to mention that these tougher times will not last forever, so hang in there if you truly believe in your idea and your company. Soon, things can turn around, and investors will once again shift their focus to growth, making it easier to raise capital. As they say, after rain comes sunshine.
