Investors look beyond survival capital

23/04/2020 - 09:37

Leaders from Perth’s investment community are urging startups to remain resilient during the COVID-19 pandemic, noting that ventures considered to be responding to the crisis will continue to receive funding.

Greg Riebe says investors are still looking for opportunities despite a heightened degree of caution. Photo: Gabriel Oliveira

Leaders from Perth’s investment community are urging startups to remain resilient during the COVID-19 pandemic, noting that ventures considered to be responding to the crisis will continue to receive funding.

Greg Riebe, who is co-founder of investor group Perth Angels, and Derek Gerrard, who among other roles serves as investor-in-residence for RAC’s venture capital fund BetterLabs Ventures, told Business News they would continue to work with startups in the months ahead, providing advice and mentoring where needed to help the businesses handle the unprecedented situation.

However, Messrs Riebe and Gerrard say there is less appetite for providing capital to ventures that are unlikely to grow during the crisis or immediately after the worst effects have dissipated.

That post-pandemic investment environment will be tough, Mr Riebe says, as startups will have to compete with the property market or the ASX, with those established sectors likely to provide greater certainty of a return than early-stage ventures.

“What we tend to find when we look at new investments [is that] early-stage investors are funding for growth, and not just to sustain a business,” he said.

“If you’ve got a new investment and you’re in an environment where dollars just go to sustaining themselves rather than growth, that’s an issue people are looking at.

“You look at that normally, but it’s become focused in the current environment.”

Mr Gerrard agreed with the sentiment, saying that while the startups he worked with were responding well to the crisis, there was little inclination to fund entities that weren’t using the cash to grow.

“We’re still open for business, it just means for some of the companies we have been looking at … it doesn’t make sense at this point in time to make a capital injection, because it means it’s survival capital, not growth capital,” Mr Gerrard said.

“We’re happy to work with them through that period because we want to see them do well and turn the investment switch on as soon as the market is back on, [but] because there’s a lot of uncertainty around timing, we need to slow that process down.”

Mr Riebe suggested entrepreneurs would be best served by creating a sustainable bootstrapping strategy as opposed to seeking external funding.

“If you’ve got an entrepreneur just searching for money to sustain themselves, it’s going to be difficult for them,” Mr Riebe said.

“They may need to change their business model, or maybe pivot to take advantage of the current climate.”

Responding to the COVID-19 pandemic may prove one of the best paths for startups to take, Mr Riebe said.

As an example, he said medtech startups were likely to gain attention from investors in the coming months, as companies in that sector would have the best opportunity to capitalise on disruptions to the healthcare sector.

It was those sorts of businesses that Mr Riebe thinks investors will be eager to fund.

“Entrepreneurs need to understand where they’re at in the growth and opportunity model, because investors are still out there looking for opportunities,” he said.

“They’re a lot more cautious, so it’s not going to be as quick getting the cash, but if you’re actually positioned in a better area, you have a chance of securing capital in the medium term rather than the never term.”

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