It’s mid-March 2020 in Amsterdam. The Dutch government calls for their so-called intelligent lockdown. From that day to the next I see my practice go to zero. My practice is advising investors on their investments from a strategic and legal perspective. My active clients at that time decide to stop all activities and wait to see where this intelligent lockdown and Covid-19 is going to take them.
I’ll skip the stress and negative thoughts that a desiccated practice brings and fast forward to the beginning of May, when the intelligent lockdown is relaxed by the government. As if magic words have been spoken, immediately emails start coming in from investors willing to resume their investment projects.
To me, it shows that investors still have a fair amount of money in their pockets and are still looking for good opportunities to invest. A recent study by KPMG [1] shows the same. In the first 6 months of this year, $19.9 billion was invested in European start-ups by venture capitalists. That is $1.1 billion more than in the last 6 months of 2019. The number of transactions, however, fell sharply, from 1,383 in the last 6 months of last year to 1,062 in the first half of 2020. The worldwide trend is similar.
With money in hand in uncertain times, which three things would investors be doing differently now, during the Covid-19 pandemic?
- Controlling terms and conditions – Investors will take more time reviewing potential investments, which entails extensive due diligence investigation and management interviews. Given the uncertain future, investors will also be more careful in laying down the terms and conditions of their investment, especially the manner in which their monies are invested in the company. Investors will probably spread the investment in a couple of tranches over time and make the release of the money subject to the entrepreneur’s achievement of pre-set milestones in order to control the financing.
- Investor focus areas – Investors have a focus for their portfolio, however, the areas where investors wish to invest could also shift as a result of the pandemic. Just as Covid-19 pushed us towards a more local focus and even further into digital, investors will follow this trend. The actions and behaviour of consumers will be closely monitored to understand where money is spent, this may also open up willingness to invest in new business models.
- Long term sustainability – Already, pre-Covid-19 investors have been more conscious of sustainability when investing, moving away from investments that are not environmentally friendly or have a negative impact. This means avoiding the quick shareholder (financial) wins and moving towards the more holistic stakeholder model.
If there is one thing that Covid-19 is showing us, we need to help each other – even at a social distance. For entrepreneurs, this means tapping into more feminine qualities, such as empathy and care. Investors will seek out the entrepreneurs taking good care of their employees, who in turn will take care of their suppliers and clients. Attracting the right team (of employees) will pay off in the long run for the entrepreneur and the investor.
So, even in the crisis in which we now live, there is still a lot of money available in the market for investment in growing businesses. Just as we have all been called by this pandemic to change, the same applies to investors and entrepreneurs.
Quirine is one of our Wyseminds – to read more about our team of experts, click here.
References:
[1] https://home.kpmg/nl/nl/home/media/press-releases/2020/07/kpmg-durfkapitalisten-blijven-ondanks-corona-fors-investeren-in-europese-startups.html
