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Should You Invest in Startups in the Midst of a Pandemic?

With the surge of funding in recent years, the path for startup investments was going on an upward trajectory. True enough, a joint report from NVCA and Pitchbook found that venture activity during 2020’s first quarter was on course with the all-time highs of 2019. Moreover, the number of deals this year was expected to surpass or at least match last year’s record. However, the plans and projections for startup investments drastically changed due to the disruptive effects of the COVID-19 pandemic.

Startups need investors to help their business grow. But as uncertainty continues to loom over the world during these unprecedented times, investors must ask: Should you still invest in startups in the midst of a pandemic? The short answer, of course, is yes — but there are some considerations that need to be made.

What to Look Out for if You Decide to Invest

Despite the worrying state of global markets, many investors and startups are still finding success. CNBC reports that fintech startup Stash received a $112 million Series F raise this April. Meanwhile, data storage company VAST Data became a unicorn after securing $100 million in its Series C round. Not to mention, today’s current events have placed the spotlight on the biotech industry, as companies enjoy majority pricing while also trading well on NASDAQ. These successes, achieved amidst these uncertain times, are possible for you, too.

Now more than ever, it’s important for investors to stay calm to be able to make sound investment decisions. In light of what feels like daily distressing news, a Marcus article on investing in uncertain times notes that it is beneficial to take a long-term view to investments. Short-term market volatility brought about by the pandemic will not last forever, and while it can be distracting, you mustn’t let it take your focus away from your long-term goals. Treat falling stock prices as an opportunity — those investing now can reap rewards later once markets recover and stock prices begin to rise up once more. It’s important to note though that consulting with a financial advisor first is crucial, especially if you are new to investing, as they can help you navigate today’s unstable market.

Gaining (Or Maintaining) Investment Interest During These Trying Times

While startups still have many reasons to remain hopeful for their future during these trying times, it’s especially crucial for you to make a great effort in gaining or maintaining the interest of your investors. Unlike before, investors might be more conservative, not just with how much they’re funding, but which startups they’ll be providing for. The pandemic has left the market in a volatile state, and making a risk isn’t ideal at the moment.

To this end, your startup can stay on the right track by increasing your runway, while decreasing your cash burn. In fact, Investopedia points out that it’s highly likely companies with a high burn rate will experience financial strains like a forced merger or even bankruptcy. To help you stay strong in the game, you should concentrate on increasing your company’s profit by reducing your overhead costs.

Another aspect that can make all the difference for your startup’s success is the quality of your relationships with both your team and investors. For the former, make sure to practice open and constant communication with them to help keep morale up during this rough period. Meanwhile, you can show your investors that you remain dedicated and driven with your startup by providing regular updates. Additionally, aim to be proactive and ask what they need from your startup to help you secure your funding.

 

Specially written for siliconvalleyforum.com

By: Rosetta Juliet

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