How Hard Will It Really Be To Raise Funding For Startup After COVID-19?
“VCs seem to be hiding under their chairs,” I said. “You can get meetings, but they’re really distracted. And the last thing they seem to want to do is give you money.”
Am I talking about raising money in the aftermath of COVID-19? No. I’m talking about my own experience successfully raising money during The Great Recession. I think raising money during the mother of all economic downturns (up until this economic downturn) is instructive.
Don’t kid yourself, raising money during a massive economic downturn is hard.
In early 2008, just like in early 2020, the economic world and the venture capital world seemed fine. However, the warning signs, just like with COVID-19, were all around us:
A. January 2008.
On January 22, 2008, the Fed dropped the Federal Funds Rate, the benchmark for interest rates, to 3.5% to support the struggling housing market. One week later, the Fed dropped rates to 3.0%.
The Fed’s action didn’t help. Mortgage foreclosures kept increasing year over year. And existing home sales dropped by 23.4%.
B. February 2008.
President Bush signed a tax rebate bill allowing Freddie Mac to repurchase Jumbo Loans. Existing home sales dropped another 24%.
Yet in VC land, all seemed well. We had just started raising money, and within a month we had found our first investor, Gill.
You need to budget more time to raise your funding.
As spring 2008 turned into summer, you could feel the economic change beginning to hit the VC world.
C. March 2008.
We signed Gill’s “half-filled” term sheet at the end of March. Gill was committing to give us $5.5M. We needed to find another investor to give us the other $5.5M.
The common belief is that once you find a lead investor, then it’s pretty easy to find your second investor to close the round. In our case, due primarily to the changing economy, this proved to be really difficult.
The Fed continued taking aggressive action, just like it is taking now, to prop up…
