How Will Angel Investors React to COVID-19 and Possible Recession

What you don’t know can hurt, so read on.


These women may be showing us what not to touch to prevent COVID-19, but what they’re mostly showing us the meme “See no evil, hear no evil, speak no evil.”  Lately, this meme has come to mean deliberately ignoring the truth which makes one partly responsible for it.

You may wish to view this overview video first

Covid-19 Update

Now I’m not a conspiracy theorist on this subject.  I’m mostly interested in being a scientist about this subject and learning the truth so that you and I can make intelligent decisions.  This, after all, is what Intelliversity is really all about — founders making intelligent decisions — i.e. using good information to take action that produces the desired results – specifically in funding innovation.

So today I’m going to bring you some information and suggested actions about the Coronavirus Disease 2019 (COVID-19) that will impact your ability to raise capital or invest it this year.

First, some Life-saving Facts

When I heard that Purell hand sanitizer is selling out everywhere or only available at unusually high prices during the COVID-19 soon-to-be-pandemic, I had to write this. 

This particular virus type is relatively hard to disable.   You’ll find the CDC’s recommendations for preventing COVID-19 as of today’s date here. Given these recommendations, the U.S. EPA recently released a list of cleansing products “for use against” the virus strain that causes COVID-19.

I challenge you to determine from this chart whether the product you’ve been using at home to disinfect surfaces can eliminate coronavirus.  Clorox Disinfectant Wipes is shown as active against rotavirus, not coronavirus, despite the claim on the product, and it takes four minutes of wetness to do that.

In my family, we’re using isopropyl alcohol diluted to 70% for all surface cleaning, since this is the approved formula for killing coronavirus (higher concentrations evaporate too quickly.)

Please understand, I can’t make any professional recommendations here about disinfectants, just my observations.   I can and do make professional recommendations about how to raise capital and be a successful founder of an innovative company. 

Some Business-Saving Facts

Road Less Traveled

The same principles hold:

  • Look deeply
  • Don’t follow the pack blindly
  • Be resourceful and find the road less traveled

You’re a successful disruptor (a Vision Master) or want to be.

For you, following the pack, following commonly-accepted wisdom in any area of your business is a recipe for mediocrity and failure.

Think about it, even if you’re product is disruptive if the way you raise capital is not disruptive, you just won’t stand out among the other disruptors.  You’ll be perceived as a mediocre disruptor. You’ll be perceived as a visionary but not a Vision Master, and you won’t attract investors’ interest.

So when raising capital, follow the road less traveled and get to your destination quicker.

Do Your Own Research

The 1918 Flu Pandemic is a cautionary tale – read here.

Hiding the extent of the spread caused millions to perish.

The 1918 flu killed 675,000 Americans; 50-100 million people died worldwide.  

“That’s equivalent to 225 to 450 million people today,” said John Barry, who wrote a history of the 1918 flu and is on the adjunct faculty of Tulane University. “The numbers are staggering.

But for John Barry, there is a takeaway from then that still applies: “The biggest lesson from the 1918 pandemic is clearly, to tell the truth.”

Teichner asked, “What are the consequences if the truth isn’t told?”

“I think more people will die, yeah. Clearly that was the case in 1918. People can deal with the truth. It’s the unknown that’s much scarier.”

What’s the Worst that Could Happen?

Bill Gates

Microsoft co-founder Bill Gates said the coronavirus is starting to behave like the “once-in-a-century pathogen we’ve been worried about.” Comparing the ongoing coronavirus outbreak to the influenza pandemic of 1957, which killed an estimated 66,000 people in the U.S., Gates said the COVID-19′s current predicted fatality rate is higher.

“I hope it’s not that bad, but we should assume it will be until we know otherwise,” Gates wrote in an article published in The New England Journal of Medicine.

According to Gates, COVID-19 poses a serious threat to the world because it’s far more deadly and contagious than many other deadly viruses. So serious that he pledged 50 million dollars to be dispursed between 12 biotech and pharmaceutical companies for research into a vaccine.

“The data so far suggest that the virus has a case fatality risk of around 1%; this rate would make it many times more severe than typical seasonal influenza,  … Second, Covid-19 is transmitted quite efficiently. The average infected person spreads the disease to two or three others — an exponential rate of increase. There is also strong evidence that it can be transmitted by people who are just mildly ill or even presymptomatic.  That means Covid-19 will be much harder to contain than the Middle East respiratory syndrome or severe acute respiratory syndrome (SARS), which were spread much less efficiently and only by symptomatic people.”  — Bill Gates.

What’s the Worst that Could Happen Financially?

The worst financial outcome

It’s impossible to predict how low the stock market will drop in this crisis, nor how long it will take to recover.  It is however somewhat safe to predict that it will eventually recover.

How Many Months Did It Take For The Market To Recover To The Pre-Crisis Peak after previous crashes?

The markets took about 25 years to recover to their pre-crisis peak after bottoming out during the Great Depression.

In comparison, it took about 4 years after the Great Recession of 2007-08 and a similar amount of time after the 2000’s crash.

It’s also impossible to know if this crash is the beginning of a recession, though it likely is because of the disruption caused by the pandemic.

I believe that post-recession, regardless of U.S. presidential election results, the 2020s will be the greatest economic expansion in U.S. history as the millennial generation reaches peak productivity and family-building.

How will Angel Investors react to a COVID-19 recession?

Eyes Wide Open

Eyes Wide Open

Based on how they reacted during 2008-2009:

  • All angels will attend to their families and personal financial issues for several weeks to several months
  • About 50% of angels will stop investing for a year or more
  • Those remaining will focus more directly on their areas of expertise
  • And some will put more money to work in private investing, knowing they can get better valuations now – a Warren Buffet strategy
  • So it will be harder to find the right investors — but they’re there to be found
  • Investors will focus more on the jockey (the founders) than the horse (all other aspects of the business, products, and market) — which you can take advantage of
  • Investors will look harder for risk factors, will take them more seriously and will act more from fear than hope – which you can mitigate
  • Due diligence will last longer and be more intensive – which you can prepare for
  • Valuations demands will be lower – something you can counter
  • Angels will prefer “Default-live” companies (as compared to “default-dead” companies that need more capital to break even). Angels are well aware of this risk factor, and many if not most will consider your requirement for additional capital (after an angel round) to be a critical red flag, unlike pre-2020.

So this pandemic, market crash, and likely recession do not tell you to stop seeking angel capital.  It does mean you need to alter your strategy.

How should you as a founder Vision Master seeking capital respond?

Hunting for Opportunity

Hunting for Opportunity

Based on how angels reacted during 2008-2009:

  • Extend your rcurrent pre-funding runway to one year by reducing your burn rate
  • Plan to raise more capital than before
  • Take a short breather from investor meetings while you do the following:

a. Rethink your business model so that you are “default alive” not “default dead”.  In other words, make sure that the next round of capital will take you to cash flow positive, where a larger next-round is optional not required.

b. Learn how to locate exactly the right investors

c. Improve your pitch by focusing on you and your founding team as the jockey

d. Improve your ability to relax investors’ fears while meeting with them

e. Improve your ability to mitigate all risk factors, to keep your valuation high

f. Take the time to fill in gaps in your founding team and board of advisors

g. Incorporate the current pandemic and recession situation in your pitch

How to Incorporate the Current Situation in your Pitch

adapt

Depends on how the current situation impacts your business:

  • Negative impact: explain how you’re addressing the negative impact of the situation
  • Short term positive: explain how you will pivot to keep the business growing long term
  • Long term positive: explain the long term trends you’re riding

Key Take-aways

Key Takeaways

  • Think differently than before, and different than others. Take the road less traveled
  • Extend your runway to one year by reducing your burn rate
  • Plan to raise more
  • Become a “default alive” company
  • Learn how to locate exactly the right investors
  • Improve your pitch by focusing on you and your founding team as the jockey
  • Improve your ability to relax investors’ fears while meeting with them
  • Improve your ability to mitigate all risk factors, to keep your valuation high
  • Take the time to fill in gaps in your founding team and board of advisors
  • Incorporate the current pandemic and recession situation in your pitch

Be a friend.  I’m trying to get more money into the right hands.  I need your help to get this info out AND to build our community of Vision Masters.  If you agree or disagree or want to add ideas, please click to this article on LinkedIn and comment or better yet share this article there.  You can also make an appointment with me personally on the Connect page of this site.  — Rob

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