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Strategies for surviving the COVID-19 Series B squeeze

Strategies for surviving the COVID-19 Series B squeeze

Mikael Johnsson
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Mikael Johnsson is a co-founder and normal associate of Oxx, a enterprise capital agency investing in European SaaS corporations at progress stage.

A technology of corporations now must overlook what it has realized. The world has modified for everybody, and nowhere is that this extra true than in fundraising.

I’ve been investing in know-how corporations for over twenty years, and I’ve seen how enterprise capitalists reply in bull and bear markets. I’ve supported corporations by means of the downturns that adopted the dot-com bubble and the worldwide monetary disaster, and witnessed how founders adapt to the brand new setting. This present pandemic is not any totally different.

A progress firm that only some months in the past was searching for a $20 million, $30 million, and even $40 million Series B, with a alternative of potential buyers, should now acknowledge that the cabinets could properly have emptied.

VCs who have been assessing potential new offers at the start of the yr have needed to abruptly alter their focus: Q1 enterprise exercise in Europe was below its 2019 common, and the figures for the approaching months are prone to be a lot worse because the pipeline empties of offers that have been already in progress.

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The easy purpose for that is that VCs are having to quickly reallocate their two principal belongings: time and capital. More time needs to be spent stitching collectively offers for portfolio corporations in want of recent funding, with little assist from exterior cash. As a consequence, funds shall be placing extra capital behind their present corporations, lowering the pool for brand new investments.

Added to these components is uncertainty about pricing. VCs take their lead on valuation from the general public markets, which have plummeted in tech, as elsewhere. The SEG index of listed SaaS shares was down 26% year-to-date as of late March. With extra ache seemingly forward, few buyers are going to decide to valuations that founders will settle for till there may be extra certainty that the worst is behind us. A spot will open between newly cautious buyers and founders unwilling to bear haircuts as much as 50%, dramatic will increase in dilution and even the prospect of down rounds. It will seemingly take quarters — not weeks — for that gulf to be bridged and for a lot of offers to develop into potential once more.

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