Investors & Entrepreneurs Working Together in the Midst of Crisis
The COVID-19 pandemic will undoubtedly affect our economy, and it is impossible to predict what the long-term impacts will be. There is, understandably, great concern for entrepreneurs and businesses. At the moment, business angels, VC investors, and buyout investors are working hard to ensure that as many companies as possible can cope with the crisis and go on to build new growth in the future.
Working closely together with portfolio companies is an inherent part of active ownership. We asked Finnish Business Angel Network’s (FiBAN) and FVCA’s members, how they are working together with portfolio companies during the current crisis. Investor responses repeatedly highlighted that startups and growth companies are now being helped in every possible way, and in very close cooperation.
“It’s clear that businesses need help right now. The broad entrepreneurial experience of the investors is now golden,” said Amel Gaily and Pia Santavirta, Managing Directors of the two associations. “Investors are currently working around the clock to help their portfolio companies’ CEOs and CFOs. The critical factors for startups’ and growth companies’ operations are being assessed together, and the basis for future decisions is being laid. Moral support is at the heart of these discussions,” the two continue.
Investor Relations and Support of the Network
“I am in constant discussions with entrepreneurs and follow the situation closely on a daily basis,” says Ali Omar, an angel investor and entrepreneur. He emphasizes the importance having a support network in this exceptional situation: “I share information in my Slack group, giving entrepreneurs a platform where they can share their knowledge and experiences, as well as encourage each other to make the appropriate moves in this time of uncertainty.”
While working to stabilise the financial situation of companies is vital, investors have also been helping the companies in many other areas.
“We have also shared best practices and held a virtual workshop with the companies to share experiences and plans,” says Juha Peltola, CEO of Vaaka Partners.
In addition to the financial situation of companies, investors highlight the paramount importance of ensuring the safety of their staff and families – for example by making special work arrangements, as mentioned by Tesi.
Finances in order as soon as possible
Many answers highlighted the fact that a re-assessment of the company’s financial situation has been a top priority. Investors have, for instance, been helping portfolio companies with budget updates and working capital management. Companies need to ensure the continuation of their business operations and that resources are properly allocated. Following the assessment, the necessary adjustments must be made swiftly.
The future of companies is now being planned in the short and long term: when looking ahead, one must look at both the end of the month and the end of the year. Both Hannu Jungman, Partner at Innovestor, and Saga Forss, an investor-entrepreneur and FiBAN board member, mention the importance of considering possible scenarios that may occur over different time periods.
“Even if companies do not see a change right away, it is important to consider the possible side effects of the pandemic, such as whether customer behaviour changes now that people are working remotely,” adds Tuomas Pahlman, an angel investor and FiBAN board member.
Venture capital investors, private equity investors and angel investors mention the importance of rapid action in their responses. “There is a need to negotiate the payment terms for all running costs, and companies have to apply for instalment free periods on their loans. After all, we’re talking about a collapse in turnover, and that turnover remains lost even when the situation returns to normal,” says Saga Forss.
Jari Mieskonen, Managing Partner of Conor, concurs: “Maximise the sufficiency of your financial resources – be prepared for the worst-case scenario.”
Obtaining new funding
“It’s good to be prepared for funding processes taking longer than before, and to take advantage of the more flexible funding and terms offered by banks and public entities,” says Timo Argillander, Managing Partner of IPR.vc.
“It is a good idea to first look at your existing investors and look into the options and instruments provided by Business Finland and Finnvera, for example,” advises Reima Linnanvirta, angel investor and Chairman of the Board at FiBAN.
Both private equity investors and angel investors strive to ensure that their existing portfolio companies remain in operation. “For now, the focus has shifted from new investments to helping and supporting existing portfolio companies,” says Miikka Laine, Investment Director at Panostaja.
Many of the investors we talked to believe that, overall, fundraising will become more difficult. Fundraising processes will take longer, and the pool of potential investors will be more limited, as the activity of international investors in Finland will likely decrease.
Outlook for the Future
Although it is difficult to assess how the situation develops, some investors are cautiously optimistic. “Diamonds are created under pressure and I believe they will be created during this crisis as well,” says Tuomas Pahlman. “The industries, in which work can be done remotely with digital tools will see big innovations – necessity is the mother of invention, and the demand has exploded,” he adds.
Reima Linnanvirta agrees: “Together with our portfolio companies, we have evaluated whether the situation has opened up new opportunities that we should take advantage of.”
Tesi also expects that the market may offer attractive investment opportunities once the situation stabilises.
“We are still actively investing in startups with top growth potential. For some companies, demand may even increase during difficult times, but we expect all companies to provide a (scenario) analysis of the effects of COVID-19, as well as (starkly realistic) plans for the sufficiency of their financial resources,” says general partner Tom Henriksson of Open Ocean.vc.
Working Together to Help Businesses: A List of Useful Resources
Several organisations have provided expert advice and solutions to the challenging situation we’re facing, as well as been flexible in their practices. Below you can find links to useful resources for startups and growth companies.
Business Finland: Funding for Business Development in Disruptive Circumstances