Thinking Of Raising Funds To Survive The Pandemic? 4 M’sian VCs Share What To Expect.

Malaysian investors share their advice for startups who are looking for fundraising during the COVID-19 pandemic. The post Thinking Of Raising Funds To Survive The Pandemic? 4 M’sian VCs Share What To Expect. appeared first on Vulcan Post.

Thinking Of Raising Funds To Survive The Pandemic? 4 M’sian VCs Share What To Expect.

While there are accessible resources to help prepare for a successful pitch in general, pitching for survival during a pandemic has its own set of challenges and questions that some founders may not be anticipating. 

Hence, we interviewed a few investors about what founders can expect to be asked when pitching for survival at times like these. Among our interviewees are:

Stanley Chong, Partner in Ingenious Haus Group and mentor at MaGIC;Jamaludin Bujang, Managing Director in Malaysia for Gobi Partners, a pan-Asian international venture firm;Ben Lim, founder and Managing Partner of NEXEA, an early-stage venture capital firm that funds scalable startups;Dato’ Andrew Tan, Managing Partner of TBV Capital, a multi-stage venture capital firm.

For some context, most of these investors shared that some startups have pitched for survival during this time, some of which are managing by seeking funding from debt agencies, as shared by Jamaludin.

Unless they’re in industries like e-commerce, e-payments, logistics and other industries that have directly benefited from the pandemic, the majority of them are asking for funding to survive, Stanley told Vulcan Post.

Why Would VCs Fund Startups For Survival?

For any founder pitching for investment even in a pandemic, it’s always important to prioritise the ROI for investors than banking on their benevolence to ensure your survival.

To Dato’ Andrew, funding for survival isn’t an issue as long as their month-to-month revenue growth is at an increasing rate.

“For the survival stage, we’ll measure startups with a few metrics, their monthly active users, recurring customers ratio, average ticket size of their customers, and their churn rate,” he shared with Vulcan Post.

As for Jamaludin, while Gobi Partners have continued funding some startups for survival, it’s usually because there isn’t a large amount of funding required and the business prospects post-crisis are still good and promising.  

Questions To Expect When Pitching For Survival Funds

“Investors may want to know how long is their runway now and what is their plan to raise capital (when, how much and at what valuation). If the fundraising effort fails, what is the contingency plan? The company may also have to elaborate their cost-cutting measures in detail,” Jamaludin shared.

Startups should also expect to be asked about plans to pivot, which both Stanley and Dato’ Andrew mentioned they would be asking when a startup asks for survival funds.

Besides that, Dato’ Andrew shared that he would be asking, “What would you do differently if you can’t raise the fund you need? What do you think is the main reason that caught you in your current dilemma? And what do you think that you have done right and which area is your key focus shall you receive the funding?”

As for Stanley, he advised startups to expect questions on their financial outlook and cash flow moving forward, and how the funds raised will be utilised. 

“In the worst-case scenario, if the pandemic prolonged, how would the overall outlook look like for the company?” Stanley added.

VCs Aren’t Less Likely To Invest During The Pandemic

When looking to invest, pandemic or not, NEXEA’s decision to fund startups are based on whether they are sustainable and scalable, and that the fundamentals of the business remain unchanged by any pandemic or uncontrolled scenarios.

“Our startup selection methodology covers situations like the pandemic, and if they are able to prove that they can be sustainable and scalable via some pivot,” Ben explained.

TBV Capital, on the other hand, has been investing in the tourism sector despite being hit badly, because once the pandemic is over, Dato’ Andrew foresees the industry booming as more people will be having a “revenge spending” behaviour as they’ll be yearning to travel.

Besides the opportunities that a startup or industry may present post-pandemic, founders can be evaluated better and valuations will become more realistic, which is an opportunity that Gobi Partners is seeing. 

Exceptions That VCs Can Make For Startups Asking For Survival Funds

Realistically, it’s quite difficult for VCss to make any exceptions because most of them operate based on mandates, guidelines, and any adjustments made by the LPs and GPs of a firm, according to Stanley.

“Unless the business plan is able to show required justifications like their expansion, go-to-market strategy, financial forecast, etc., and have the potential to scale and profit post-MCO, it would be quite difficult to make an exception,” he explained.

To Dato’ Andrew, what he’s observed is that a lot of startups are very creative and hardworking, but lack management and financial skills. 

Hence, when an exception has been made to fund a startup for survival, he might ask for a board seat and to be involved in the startup’s management, especially on the financial side.

Safety Nets Investors Will Have For Themselves

In events where TBV Capital isn’t able to be actively involved, however, a loan agreement structure will be created as the VCs safety net, whereby if a startup doesn’t achieve their KPIs, they’ll have to return the investment back to the VCs.

“We also include another clause, which is the liquidation preference of 1.5x of the investment amount which founders will be asked to sign a letter of guarantee on,” Dato’ Andrew said.

For some VCs like NEXEA, they’ll involve their investors from the start in guiding the startups they choose to invest in regularly, with partners like Allianz, Digi, Spritzer, etc., as leverage for sales and networking.

If You Fail To Get Funded For Survival, What Can You Do?

“Pivot or hibernate. Pivoting is the preference here, finding a side or temporary revenue stream to sustain breakeven after cost-cutting measures. If that fails, hibernate the company so that it may survive in a dormant or minimal mode to come back once the environment allows,” Ben shared with Vulcan Post.

When hibernating, Stanley suggested optimising the overall financial aspect like spending, collection, changing the pricing model with customers, partners, suppliers, etc.

“For example, you could do pre-paid vouchers for your customers, package deals, pre-orders with an upfront payment, a longer payment period from your suppliers, and a barter trade with your partners,” he explained.

If a startup cannot secure funding for survival, Dato’ Andrew’s advice is to focus on sales and not fundraising. 

“Focus on adding value to customers and understand the changes in the consumer behaviours, needs and spending behaviours,” he advised.  

The most important thing, though, according to Jamaludin, is that founders must remain positive. Even if the worst has hit the company, they should not stop from coming back again when the market recovers.

“Use the bitter lessons earned during the hard times and use that as guidance as they move on. Tough times don’t last, but tough people do.”

Jamaludin Bujang, Managing Director in Malaysia for Gobi Partners You can read more funding-related articles we’ve written here.You can read more investor-related articles we’ve written here.

Featured Image Credit: Stanley Chong of Ingenious Haus Group, Dato’ Andrew Tan of TBV Capital, Ben Lim of NEXEA, and Jamaludin Bujang of Gobi Partners