Interview with an angel: Why early-stage startup funding is still up for grabs, and how to get your hands on it

In the early days of Australia’s COVID-19 lockdown, we spent a lot of time considering what the economic crisis would mean for startups, and especially for those seeking funding.

In particular, the concern was that seed and early-stage funding could be under threat, as individuals became more cautious, and VCs focused on supporting their portfolio companies.

But, this brave new world is never short of surprises. Since then, we’ve reported on a string of investment rounds of all shapes and sizes, including for startups at the earlier end of the scale.

Preezie secured just over half a million in seed funding for its e-commerce tech, and just this week, Antler announced the 13 startups that have secured $100,000 apiece in initial capital and a place in the second stage of the startup’s generator program.

Sydney Angels has also revealed investments into three startups — SAAS data startup Trendspek, insurance startup JRNY and virtual group booking platform Cogsworth — totalling $2.4 million.

So, perhaps seed funding is indeed still on the table.

No shortage of cash

The coronavirus pandemic has been playing havoc in Aussie markets since early-March.

It may feel like it’s been dragging on forever, but Adrian Bunter, an investor who sits on the committee of Sydney Angels, tells SmartCompany the time between then and now isn’t very long in startupland.

Those seeking angel investment have to make a plan, get to know potential investors and figure out who could be a good fit, then build relationships with the right people, and that’s before they even get to pitching.

At the same time, while a volatile market does mean some uncertainty, it doesn’t completely quell appetite for investment. And for startups, that’s good news.

High-net-worth individuals have cash to invest, Bunter says,

“Stock markets are highly volatile … they see savings in the banks earning them zero interest,” he notes.

“They’re actually looking for other alternatives.”

That said, this doesn’t mean there are wealthy benefactors just throwing money around. The virus, and the economic environment it has created, also means there’s more competition than ever for that cash.

Many startups may not have been considering raising at this time, believing they had enough runway to last another six months or so.

“All of a sudden their revenue streams dry up, and therefore, they need to raise sooner rather than later,” Bunter says.

The advice has typically been for startups to secure at least two years’ worth of cash, so they can comfortably weather this storm.

While there’s capital to be found, every startup with less than that is out pitching for it.

“The longer you wait the harder it’s going to be.”

Attracting an angel

The three startups the Sydney Angels just backed have a couple of things in common, Bunter says.

Firstly, they’re all solving big-vision problems.

“And they’re not just problems that are Australian. They have applications all over the world.”

JRNY, a New Zealand startup and the group’s first investment outside of Australia, already has traction in the New Zealand and Singapore markets, and is fielding interest from Australia too.

Cogsworth is tackling an issue that many of the angel investors in the group have dealt with firsthand, he explains. It’s a relatable pain-point, and the solution is simple, “but highly scalable”, Bunter explains.

Secondly, each of the three has strong founder teams, the investor says.

“The earlier the stage of the business, the more critical the team and the founders are,” he notes.

“At the end of all of it, you’re backing people.”

It’s this aspect of the angel investment world that has really been shaken by the COVID-19 pandemic. It’s not that the capital isn’t there. But, if you haven’t built a relationship with your investors already, it’s considerably harder to do so through video chats.

Without events and industry social occasions — even without communal spaces such as the Sydney Startup Hub — a layer of the get-to-know-you phase is gone.

“You just bump into people, and people introduce people,” Bunter explains.

“That casual collision doesn’t happen.”

Startups seeking to connect with angels at this time will have to put a little more effort and planning into building those connections, he says.

In fact, for many, it’s easier to jump on a call than to schlep on down to a networking shindig.

But, founders should be prepared that the process will take longer than they think. Even pre-pandemic, it tends to take longer than you expect, Bunter says.

“Everyone leaves it a little bit too late.”

Think about the relationships you want to build now, he advises, and be proactive about seeking advice and feedback.

“It’s never too early to start engaging with people,” he explains.

“But don’t bend at any feedback you receive and chop and change,” he advises.

“You still need to have some courage of your convictions and robustly think about what you’re actually pitching to somebody.”

The discussion is part of the process, he says. Investors want to push founders to see how they cope under a grilling.

“I shouldn’t be able to come up with many questions that the founder has never thought about before and can’t answer,” Bunter says.

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