How the pandemic could change the game for fundraising
This article originally appeared in Forbes in January 2020.
When Covid-19 first reached the U.S. and businesses rapidly began to shut down, investors braced for the worst. Venture capitalists (VCs) put out messages to founders to shore up their balance sheets and prepare for a funding nuclear winter.
But for businesses in many sectors, winter never came. Government stimulus and the ease of working remotely meant that many larger businesses and investors continued without missing a beat. In-person meetings moved to Zoom, and day-to-day communications moved to email or Slack.
While business as a whole transformed virtually overnight, the infrastructure of investing has stayed the same. Investors may be conducting their meetings virtually, but they still typically rely on outdated systems such as data rooms and requesting company information via email. These anachronistic systems don’t allow investors to see a company’s data in real time, making investment decisions more difficult. And because each company can choose what data to share and how, investors can’t easily compare various investment opportunities.
The upheaval of traditional systems due to the pandemic presents a chance for investors to modernize how they invest. Instead of bringing in-person systems online, why not completely reinvent investing from the ground up? Why not use this as a chance to invest smarter, using data instead of personal relationships to make investment decisions?
Investing And Covid-19
Before Covid-19, investing was mostly based on who you know and who you could shake hands with. Many investors insisted on meeting founders in person, meaning that the companies an investor would invest in had to be geographically proximate. This also meant that founders needed existing connections with investors to receive funds; the company’s successes alone weren’t enough to catch most investors’ attention because investors were overwhelmed by pitches and decks and couldn’t engage with every entrepreneur who wanted to speak with them.
But the pandemic presented the perfect landscape for change. Archaic systems and paradigms that were already shifting are seeing change even faster than before. Suddenly, taking a video call in your bedroom with kids playing in the background is no longer unprofessional and taboo. Conversations that would have previously required formal in-person meetings at a nice office were suddenly conducted from living rooms all around the world.
While investors moved their meetings online, their methods of investing didn’t shift in most cases. They still sought founders they already knew in areas they were still close to — even if they couldn’t travel to the companies’ offices.
Investing can and should undergo the same shifts other systems have. Instead of relying on proximity and personal relationships, investors should switch to a modern, digital way of evaluating investments: data.
Investors have never had easier access to company data than they do now. With more and more companies storing all their financial information in the cloud, investors could pull data directly from a company’s system of record and evaluate its profitability and projected growth without meeting in person or relying on antiquated data-sharing systems. They would be able to access this data in real time and holistically without waiting for the company to share information manually.
The difference between a real-time system and one that relies on data from quarterly financials is their granularity. A system that shows transaction-level data allows for more precise forecasting because it’s driven by consumer behavior, which is far less volatile than valuations. This level of detail can provide investors with a much better picture of a company’s overall health than traditional reporting.
Covid-19 has already forced investors to eliminate in-person meetings as a factor in their investing decisions. Evaluating companies by their data would be a logical next step in the process, removing the need for these meetings entirely even after the pandemic passes.
The pandemic has created upheaval across industries, businesses and systems. From how we communicate to how we do our work, the entire business world has had to shift rapidly to accommodate the pandemic’s restrictions.
In the midst of these changes, there is no better time to reinvent the way we invest. The world is going digital, whether we like it or not. If investors want to remain on the cutting edge of investing, they need to follow suit.
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