It’s probably fair to say that in the immediate days of lockdown, few were looking to transact. But as we continue through this period, particularly to the point now where we are beginning to see an easing of restrictions, funds are considering new investments. So, for ambitious private companies, is now a good time to be trying to raise institutional capital?
In the uncertainty of this crisis, it’s likely that most businesses have been completely focused on their operations to protect revenue as much as possible so the typical continuous growth that is sought by funds is unlikely to be present.
Some businesses have been lucky enough to be benefitting from the unique conditions and are seeing their business profit. Notable examples include healthcare, hygiene, home delivery and other direct to consumer companies.
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But in most cases, companies that were a few months ago major growth enterprises have been having to manage their finances very differently.
Even for those companies that have fared relatively well, there are some challenging headwinds. Internal factors such as increasing debtor books or shorter credit terms from suppliers as all companies try to conserve cash may have put significant financial strain on the business. Growing businesses may have flipped from a transitional year of growth, to simply wanting to come out of this crisis still operating. Externally, despite the enormous improvements in video conferencing and the sophistication of technology like Zoom and Teams some funds will still not be able to invest without having met the management teams face to face. Growth investing is about backing the right team with the right idea and funds may feel a duty to their LPs to not invest without having physically met the management teams they are backing.
That said, for ambitious new businesses seeking growth capital in the short and medium term, there are an increasing number of investors still looking to deploy capital and that have stated they are open for business, but again we come back to that word ‘uncertainty’ and are only likely to invest in particularly strong candidates. The clear message from funders is that the bar for investment has gone up while appetite for high valuations have come down. Hardly surprising and time will tell whether that comes to fruition.
For the right company, a well crafted pitch with a suitable valuation pitched to the right investors has every chance of succeeding and we are always open to discussing how best to do this with companies.
Even if currently circumstances make a fundraising process impossible, time spent preparing is unlikely to be wasted. We encourage our clients to think about the investment story and spend some time preparing the relevant information for when you seek funds. Whether you’re in a good position for growth or reaching the point of necessity to raise funds, with an end to the lockdown tentatively in sight, this could be a prime time to start the conversation and get the ball rolling.
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Hugo Lough, Head of Private Company Fundraising
020 7220 0596 | firstname.lastname@example.org