Fundraising Advice from eight top blockchain VCs in 2020 — Part Two

Last week we spoke with six of the top blockchain investors in Europe to get their advice on fundraising in 2020. For part two of this post, we asked a couple of follow up questions, as well as receiving feedback from another two venture funds. This second article focuses on how startups who have completed their fundraising should behave in this market, and if there are any regional differences right now when it comes to fundraising.

With the major paradigm shift that 2020 has brought, this post provides some great insights and fresh perspectives from across our European investor network. Part two delivers a wider array of insights to really help your planning and navigation of these times.

Feel free to reach out if you have any questions or feedback, message us at [email protected]

What is your advice to startups who have already fundraised? Or do you perceive the funding climate is drastically different between Europe, the US and Asia right now?

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Fabric Ventures— Max Mersch, General Partner and Julien Thevenard, Associate

Venture investors are playing the long game, so if you have traction already and keep growing in this environment, you should not have too much trouble raising again. It is true that the numbers might take a small hit due to the situation and you might take slightly longer to reach your targets. Ideally, you’ll have enough runway to last until Q4–2020, Q1–2021 — if not, start planning with your investors — a small bridge discounted on your next bigger round might be enough to last until the situation improves globally.

Meanwhile, make the most of it:

• Entrepreneurs see opportunity — we hope the global situation improves quickly, but one thing is certain, there are and will be consequences worldwide for the foreseeable future. And, these are opportunities for nimble players to innovate: new issues to solve, from data management in Covid-19 tracking tools to inflationary nature of government stimulus packages; some habits will change (e.g. less travel, more remote working). Can some of your tech help solve these problems?

• Remote-work — Most teams in this space have the advantage of being more open to remote / distributed work. Take advantage of it! As other companies are adjusting to remote work issues, there are opportunities to win some deals and attract talent.

• There are a number of grant initiatives from the Web 3.0 community (e.g. Ethereum Foundation, Web3.foundation, Near foundation), as well as community approaches such as Gitcoin’s CLR matching.

• Do not hesitate to take the Government help that exists in most European countries e.g. BPI in France. It is there to help founders!
  We are seeing little difference between European and US investors — the best investors are still open for business, and are even more eager to deploy capital in the face of this new challenge.

Semantic Ventures — Alex Shelkovnikov — Partner

• Take this opportunity to be honest with yourselves regarding the true objectives for the business and whether you are still on course, and, if necessary, re-adjust.
• Conduct a strict review of the cost base, and reduce as necessary — make sure you have enough cash to weather the storm without putting the company in hibernation.
• Don’t shy away from or delay any tough decisions that need to be made, but be very transparent and communicate with the company about the rationale for making them.
• In enterprise, assume deals take longer to close, so use your most valuable and developed assets and relationships to convert.
• Focus on achieving the numbers that really matter, and assume it might take longer to do it, so plan accordingly.
• Selectively look into alternative / non-dilutive forms of capital that might be increasingly available in your jurisdiction in order to increase your runway.
• If not already, consider discounts for upfront payments to help with cash flows.
• Have a good pulse on your existing investor base and who / under which conditions they would bridge you if necessary.
• Keep team morale up.

The Garage Paris — Tierno Tall — Blockchain Investments

Funded startups need to be antifragile. On the one hand, it’s a cash management problem to solve, therefore cut fixed and variable costs which are the least detrimental to the business. The v-curve is not going to happen overnight (we will rather see W-curve) so plan for the next quarters to come. Then, we see many startups continuing to produce content, grow their community, and present their product via demo/mockups. I think that’s the strict minimum.

Signature Ventures — Dr. Juri Stricker — Tech Lead/Principal and Manuel Trojovsky, Principal

Cash is king. In the current environment, cash is king. Get an overview of your costs and runway today. If necessary, take immediate action and reduce cash burn to conserve funds. Bear in mind that cash is like oxygen — you hardly notice it until you’re running low. Nobody knows how this plays out, so go through all conceivable downside scenarios asap, using realistic stress assumptions. Come up with back-up or emergency plans, especially with a view to preserving liquidity (cost-saving measures, generating or front-loading revenues via discounts or special offers). Keep an eye on the runway.

Maintain revenue generation.Crypto is volatile, so are revenues. For many people, the financial situation has changed overnight, which inevitably has implications for blockchain and crypto startups too. The current risk-off mode might entail a change in recurring revenues (e.g. consumers buy less crypto through fiat on-ramps and exit trading in a down market). Be swift to react to the scenario and anticipate market trends. For instance, DeFi apps or crypto lending platforms are offering attractive rates in the current low-rate environment. If your company has sufficient liquidity, try out new business models to speed up adoption and revenue generation at a later stage thanks to lower customer acquisition costs (e.g. “freemium”).

Assume lower valuations. In light of the uncertainty and the more challenging backdrop in financial markets, funding conditions are likely to become less favorable. In this context, previous backers are more important than ever, in part because VCs often cut back on investing and re-focus on existing portfolio companies instead. It is therefore critical to remain in close contact with your network and other investors, even if it’s just for the sake of getting an overview of what’s going on. Looking ahead, assume lower valuations and smaller rounds for some time.

Talk to the team. Make sure everyone is well-off, particularly during times of isolation and working from home. Help your team members and staff — they will be grateful in the future. Many things are up in the air in the current situation. Give regular updates and communicate clearly — don’t keep your team guessing. The current environment might also be an opportunity to look for key hires or fill vacant positions more quickly.

Keep an eye on state aid. Closely watch public support programs to ensure startup survival launched by governments across the EU (e.g. EIF, KfW in Germany, local governments), and check if you’re eligible. In countries like Germany, you might qualify for state aid in the form of short-time work schemes like “Kurzarbeit”, an initiative first used during the financial crisis of 2008. This allows employees to work shorter hours while receiving up to 67% of their base salary to keep their jobs.

Maven 11— Balder Bomans — CIO

Simple, try to budget towards an 18-month runway, and use the time targeted towards customers. I am hearing via various teams that actually now, potential customers have time on their hands to discuss, pick up the phone and get informed — use it ;).

We are investing on a global playing field. Hearing our friends, funds and companies around us, we do not have the impression it is significantly better in either region in terms of fundraising and capital available. In absolute terms, Asia and the US are obviously very different, as both sides are less risk-averse, and as such, more early-stage capital is deployed in general.

IOSG VC — Jasmine Zhang — Partner

• Stay alive and cut expenses. Staying alive is the most important.
• Rethink business models. It might be a good time to reevaluate and rethink your business model. Treat the crisis as stress testing. Can it be sustainable in such a situation? It is a valuable time to slow down and polish business models and growth strategy.
• Take care of your employees. Startups might need to let people go in some extreme situations. It is important to consider compensation plans and show empathy.
• Hope for the best, and prepare for the worst. Startups should consider a range of scenarios “best”, “mild” and “worst”, and think through what should be the corresponding solutions.
• Be transparent and speak out. In such situations, it is extremely important to be open with your employees and investors. Communicate with industry peers and investors. Keep an eye on government resources.

I think one obvious difference is that Asia (China specifically) is already used to online conferences, fireside chat or panel format. Of course, it influences offline events, but every day there are already a lot more online events. Startups in the same field seem to have more conversations with each other. I hope I can see more similar things happening in Europe.

Outlier Ventures — Lawrence Lundy-Bryan — Partner

There are always regional differences in funding in technology, and in crypto more specifically. Europe has traditionally been more conservative and has fewer funds deploying less money into the blockchain market than the U.S or China. That said, there will always be money available for high-growth companies. It might be harder to access and take longer to close, but companies that are solving a huge problem for lots of people and have proof of that, will get funded. I wouldn’t suggest looking at any particular region for investors, focus simply on getting money in the door from good investors as quickly as possible without selling too much of the company.

The major fundraising trend to come out of this health crisis and subsequent recession will be a focus on profitability and stable growth. There will still be a role for growth capital, but entrepreneurs should go back to basics and think about profitability ahead of growth.

Greenfield One — Felix Machart — Investment Team

This is a time to re-examine your current business plan. Rather than planning for 18 months, look at how you can stretch your runway to last 24 or even 36 months. Another option we are seeing some startups exercise right now is a seed extension round, allowing them to comfortably extend their runway.

Some other big areas to consider are:

• Cutting unnecessary costs — an office space might no longer be necessary as people adjust to remote work.
• Invest in team-building — spend time and money on creating a fruitful team culture. This will help with team cohesion and hopefully increase productivity and output in the process.
• Think positive — if you have runway, then try to think of this as a positive and productive opportunity to make more progress with fewer distractions.
• Increase options — you may have to cut salaries to keep more of the team together, consider replacing this with stock options to boost loyalty and maintain morale.
• Keep fundraising — it may be harder to raise, but even if you can’t meet people in person, you should maintain contact and try to fundraise anyway.
• Produce content — stay active, release regular updates and maintain your content pipeline so investors and the market know you are open for business.

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A big thank you to all of the eight funds who contributed to part two of this post. We hope you found these recommendations insightful and applicable.

If you missed it, part one of this article addressed how projects should address getting funds in the current market, and can be found here.

Please get in touch with any questions or comments at [email protected].

Stay safe!

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This article was first published on Medium