VC funding was down 9% in Q1 globally, but even so, early large deals (>$100M) pushed total cash invested up 14% QoQ. Most of us aren’t in the mega deal category and are more concerned about how we’re going to restart operations in the midst of muddy signals from government.
What’s the new normal going to look like for startups and M&A as we look to the end of 2020 and into 2021?
Stabilizing and Growing your business - the fundraising and M&A options are going to depend on the current state of the business and how the business bounces back from the last month of uncertainty.
Rule number one over the last four weeks’ calls and meetings was “just survive” and live to fight another day. For many of you, that’s included changes in staffing levels in furloughs or layoffs. For some, PPP has bought a couple of months to work through some of the uncertainty.
Talking with your current customers. Now more than ever, it’s important to do joint planning and forecasting with your customers. Set calls with your customers as soon as they are ready, and talk about the remainder of 2020 and into 2021. The buyers who are looking to do due diligence on the M&A are going to do the same calls. Make sure you know the answers before the buyers.
Do you have a path for growth? Do you need to restart operations? Get with your team and put the plan together. If you’re working with a buyer, get them to work on the assumptions with you. Don’t do the work in a vacuum. It’s harder to argue valuation if they are part of the planning. Build your plan for the future where you hope to thrive.
Fundraising - if you’re part of a venture portfolio, it’s likely the fund (if not a micro VC) has set aside capital for future rounds. You should ask if you’re part of their planning. If not, and you’re going to require additional capital to sustain and grow, ask them for their recommendations. Like the planning above, include them in the solution - you’ll be less likely to ge second guessed.
M&A - with valuations down, is every company on sale? Not necessarily. If the deals were already in place, timelines have lengthened, and earn outs may have changed. But deals can still likely get done - if there aren’t any surprises and fall out from the last 30 days.
If your buyer is strategic, they need to re-forecast and do their planning before any deals are going to get closed. If you’re being acquired by private equity (PE), the answer will depend if you’re an independent or a “plugin” or “tuck in” to an existing “platform” investment.
Private Equity has cash committed to their fund and a plan to deploy. But the time frame has been shifted. If they had a solid strategy before Covid-19, they are likely to continue to pursue that strategy, only if that strategy was not materially impacted by the virus. It’s likely that now is a time to buy - but time is on their side.
Be safe out there!