Over the last few months we have been covering how the startup ecosystem in the Nordic and Baltic region has been affected by the Covid-19 crisis, including the economic impact on startups trying to stay afloat. Due to the economic downturn caused by the pandemic, venture capital investment into European startups has slowed down. According to Sifted, funding rounds in Europe dropped by 22% in March and valuations are down by 10-40%. This comes at a time when cash-strapped startups are in particular need of extra funds. To help startups navigate the current funding landscape, we have collected some of the best sources of advice from Nordic and Baltic venture capital investors on raising capital in uncertain times.
Slush, a Helsinki-based initiative that hosts large-scale events to connect and educate founders, spoke to 12 Finnish venture capital investors to get their view on the challenges and opportunities that the Covid-19 crisis has created for startups. In these interviews, available as part of Slush’ extensive library of startup resources, VC investors provide insight into how Covid-19 is affecting the operations of their funds and how startups can work with new and existing investors during this time. The majority of investors interviewed suggest that startups prioritise preserving cash-flow until the economic outlook becomes more certain. Jan Sasse, CEO of VC-firm Tesi, explains how a startup might go about extending their runway: Businesses should start by assessing whether previous assumptions on revenue growth are still realistic. Once a new financial picture emerges, businesses should prioritise adjusting costs by, for example, postponing investments and cutting back on operating costs. As soon as costs are taken care of, management teams should focus on stepping up to provide strategic clarity and take care of their employees who might be struggling in uncertain times.
While a lot of investor advice focuses on reducing costs and working with existing investors to extend their runway, some also see the positive side of current events. In her interview with Slush, Inka Mero – managing partner at Voima Ventures, points out that “many of today’s unicorns have been founded or built during recessions or downturns – resource scarcity can be a source of creativity and pivoting”. As Paulina Martikaininen from Maki.vc stresses, now is the time to “think if there is an opportunity to tune your business model and offering to fit the changed market better – consumer behavior is changing, competitive landscape is changing, and paid acquisition costs are falling which presents an opportunity for the lucky ones”.
The bank Nordea recently hosted a webinar about the outlook for venture capital funding during the COVID-19 pandemic. Artturi Tarjanne, co-founder of Finland’s oldest venture capital fund Nexit Ventures, joined a group of venture capital experts to share their thoughts on the Covid-19 pandemic. As an investor, Artturi experienced two previous financial crises, in 2000 and 2008. Drawing on his past experiences, Arturri expressed to Nordea that he was relatively optimistic about the current situation, pointing out that public funding has been used to remedy the situation more quickly and actively than during the economic crisis in 2000.
However, he still urges startups to be proactive about the challenges that the crisis might still present. Arturri stresses that one of the most important resources that startups currently have in terms of funding is existing investors. He encourages startups to work with current investors to see if they can receive extra support during this economic downturn. In addition, existing investors can help to secure new funding, as their active involvement can encourage new investors. Arturri highlights that in working with investors and other stakeholders in uncertain times, open and honest communication is crucial. He advises startups to regularly update investors, employers and customers with good news, bad news and even if there is no news. These frequent conversations with key stakeholders meet the need for clarity in uncertain times. More advice from Arturri and others can be found in the recording of the webinar (in Finnish) and in a written summary of key highlights and tips (in English).
In several articles for Forbes, Copenhagen-based VC investor Kjartan Rist provides valuable insight into the effects of the current crisis on the startup and VC ecosystem. Kjartan is the founding-partner of venture firm Concentric, which invests in early-stage tech ventures across Europe. With 20 years of experience in the technology sector as a founder, advisor and investor, he is well-placed to give advice on handling the current crisis. In his article on venture capital beyond Covid-19, Kjartan urges startups to answer three crucial questions when determining their approach to business during and coming out of the crisis: 1) how badly has current and future cashflow been affected? 2) what business metrics should I pay attention to? 3) are the products/services I’m providing likely to be deemed ‘essential’ by my customers, at a time when both individuals’ and organizations’ finances have taken a hit?. The answers to these questions can help startups act swiftly but justifiably in uncertain times, which Kjartan stresses is crucial to survival. In addition, Kjartan echoes the advice of Artturi Tarjanne, encouraging startups to work more closely with existing investors. Kjartan points out that VC firms are becoming more aware of the importance of being actively involved in the success of their portfolio companies, stating that “as the COVID-19 crisis has escalated, even the most laissez-faire VCs have been forced into offering more support to their portfolio companies”. One of the unique benefits of working with VCs that Kjartan highlights is that startups can benefit from best practices and opportunities presented by other ventures in their VC’s portfolio. According to Kjartan these portfolio-based benefits are especially valuable during the current situation, as “at times of crisis, it’s easy for companies to become too insular, which can make them slower to react to external events”.
Talking Tech – The Nordic View is a podcast hosted by Nordics’ leading VC firms Maki.vc, EQT Ventures and Heartcore Capital providing a deep-dive into the turbulence that the European tech scene has experienced in recent months. In each episode, the three hosts and a guest journalist reveal their analysis on the European technology market and share concrete advice for startups founders and investors looking ahead. The first episode, featuring a guest journalist from startup publication Sifted, focuses on the impact of the economic downturn on VC funding. The podcast is available on Apple Podcast, Spotify and other podcast streaming platforms.
Danske Bank’s startup platform The Hub, has been hosting a series of webinars to provide support and advice on how startups can navigate the Covid-19 crisis. Several of the webinars feature investors from Nordic venture capital funds including byFounders, EQT Ventures, and Industrifonden. The webinar that will be of particular interest to startups seeking to work with VC investors at this time, is one on ‘how a Nordic-based VC thinks and acts these days’. The session is led by Tommy Andersen, managing partner of the Nordic and Baltic early-stage VC byFounders, and focuses on how his firm is currently allocating funds to startups. Recordings of this webinar and all others hosted by The Hub can be found on The Hub’s Covid-19 briefings webpage.
In response to uncertainty about which VC firms are “open for business” during the crisis, founder and angel investor Phil Wilkinson has created an open-source list of European startup funds and investors and their investment status during Covid-19. In addition to indicating which VCs are currently making investments, the sheet provides information about what kind of startups different VCs are looking to invest in, the typical amount of investments made and instructions (including contact details) on how to connect with firms to submit pitches.