The rapidly developing economic crash caused by the Coronavirus (COVID) Pandemic is creating a new normal for all markets including the capital industry. Those businesses and projects that need capital now to remain open and to move forward must adjust or re-think their capital strategies to make themselves attractive to available capital.
Most investors who provide equity investment as part of a capital stack have paused in making investments. Within the capital industry, this action is referred to as ‘moving to the sidelines’ where investors will remain inactive till such time when that they become comfortable they may re-enter the market.
The common wisdom is to delay any capital campaigns until the market has stabilized. However, many businesses and projects will not have this option. If they do not obtain capital now, their business or project may fail. Regardless of a scarcity of currently available capital, businesses need to begin planning and staging to start a capital campaign as soon as money becomes available from any source.
When businesses raise capital, they must always compete with all other businesses for investment dollars. This competition is amplified when there are fewer investors making fewer investments and those investors are distracted and do not feel any compelling reason to make an investment now.
During a disaster, businesses must also compete with all charitable and community needs such as healthcare, homeless and food banks that are also short of money with greater demands upon their resources. An exception to this situation is where a business is directly addressing the disaster. In this case, businesses developing vaccines, producing PPE or repurposing resources to help those most impacted will be given highest priority.
During a disaster, government disaster funding is often substituted for equity funding while the capital industry stabilizes. Sources of disaster funding utilize different decision criteria that private investors.
The challenge is presented of “How does a business position itself to be the preferred target for investors now?”
Here are my top five characteristics of a business/project that will be successful in finding first dollar investments:
- · Shovel ready – money can be immediately expended without requirement of authorization/approval of a government agency, a committee or disinterested person or any process that would slow the business/project down.
- · Jobs generators – will create the greatest number of new jobs (not simply recapture old jobs).
- · High credibility – participants are known to each other and have reputations as people who get things done.
- · First domino – the success of the business/project will quickly cascade into the success of other businesses and the community(ies) in which the business/project is located.
- · Community endorsed – the business/project is viewed by the community as a valuable asset.
Recommended reading: Community Revival in the Wake of Disaster: Lessons in Local Entrepreneurship by Storr, Haeffele-Balch and Grube. Amazon link
All these characteristics favor immediate action with high job generation and community impact. Use of these characteristics will favor large business/projects already in motion.
These characteristics will not favor businesses/project in development, long-term slow building businesses/projects or any small business and, in particular, those single owner businesses with no employees. These characteristics will also not favor rural communities with lower populations.
Businesses/projects that do not have all these characteristics should position themselves as a vendor/supplier/reseller to a business/project that does or become part of a community project that has all these characteristics.
Unfortunately, application of these characteristics will not prevent bad investments or money going to less qualified businesses and projects. To gain the attention of investors, it will be necessary for a business or project to make themselves highly visible like a beauty contest. To gain as much economic recovery traction as possible, investment decisions will often be made quickly without much due diligence.
Attracting capital by a small business now will be the principal topic of the next free Small Business Pandemic Survival & Recovery Webinar presented by Karl Dakin and produced by the Capital Innovation & Technology Institute that will be held at 9 am MDST (Denver) on Thursday, April 23 at Knowledge Avatars in a Virbela virtual office platform. You may register now at https://knowledgeavatars.com/.
Capital Innovation & Technology Institute LLC
The Capital Innovation & Technology Institute now offers for sale the Small Business Pandemic Survival & Recovery Kit with information on development of a capital strategy and accessing funding from government disaster relief programs. https://knowledgeavatars.com/