Earlier this week, multinational professional services firm PricewaterhouseCoopers (PwC) released a report suggesting that that the crypto industry should be prepared that funding deals will likely be affected even more negatively throughout 2020 as the economic fallout from the coronavirus crisis continues.
The Most Diverse Audience to Date at FMLS 2020 – Where Finance Meets Innovation
“The global headwinds caused by the coronavirus and other related events are having an impact on many industries globally, including the crypto industry,” the report said. “We believe that the crypto industry is not immune to these conditions and the number and value of fundraising and M&A deals may be impacted as a consequence in 2020.”
While the report was specific to the crypto industry, there’s almost no question that the economic fallout from the coronavirus could significantly impact the fintech funding landscape as a whole: Toan Huynh, Venture Partner at Information Venture Partners, a venture capital firm that specializes in fintech, told Finance Magnates that “there is no doubt that we will be talking about the ‘R’ word (recession) very soon.”
“There is no chance that the actions that will be needed to contain the virus will not have a dramatic impact on the economy. We will fall into a recession,” she said. “We have seen the beginnings of the adjustment in the public markets. What is incredible about the recent correction is that the market has adjusted before the negative economic news. It is pricing in expectations of an economic shock.”
Therefore, the outlook for companies in the early stages of growth is quite different now than it was a month ago: “as of just a few weeks ago, everything reflected the expectations of continued growth and healthy valuations,” Huynh said. “The markets have adjusted the valuation metrics to reflect more historical norms, but not yet the impact on revenue, cash flow or profitability (metrics).”
Startup Genome: The #coronavirus is hurting
global #startup #investmentshttps://t.co/HsNZTs9sCo #fintech #insurtech @DEANTAK #VC @BarkowConsult @FrankJSchwab @psb_dc @andi_staub @RAlexJimenez @leimer @UrsBolt @Visible_Banking @jblefevre60 @startupgenome @TheRudinGroup @efipm pic.twitter.com/Wt9ydkCwos
— Spiros Margaris (@SpirosMargaris) April 2, 2020
And in the end, “The best companies will still get funded,” says Murphy. “It might take them a few extra weeks, and they might get a few less term sheets to use as leverage, but they’ll be fine.”
At the same time, companies in their very early stages may have better luck if they put off their efforts for a few months: “they can put off starting for three months — their only cost is themselves,” Murphy said.
Crossing T’s and dotting I’s is more important than ever
Therefore, when it comes to funding, covering all the basics is still very important–Natacha Rousseau, strategic communications and investor relations specialist at Diplomatiq, told Finance Magnates that even though some of the more traditional methods of networking may be off the table, startups must make sure that their basic strategy is in order.
“First and foremost, startups need to work and develop their business models and pitch decks to reflect the current economic situation and reflect their ability to adapt,” Rousseau said. “Founders need to deeply research potential investors, and take the time to perfect or develop their tech solutions during this quiet period. Focusing on crossing their ‘Ts and dotting their I’s’ to ensure they are absolutely ready to pitch or present to investors when the time is right.”
Therefore, this time in quarantine could also be sued to “practice investor pitches and have a 30-page pitch deck and a 10-page pitch deck. Apply to accelerators and incubators; network and strike partnerships.”
Expanding revenue through customer service
And while attaining VC funding may prove to be a longer and more arduous process than in the past, fintech companies have another opportunity to raise their capital through the corona crisis: through good, old-fashioned revenue from clients.
Indeed, the fintech industry has seen a veritable boom in usage since the coronavirus quarantines began–in late March, financial advisory organization deVere Group reported a 72% rise in the use of fintech apps in Europe.
Toan Huynh told Finance Magnates that “the COVID pandemic has actually accelerated the move to digital programs and created a new unprecedented level of urgency to move to the cloud and leverage technology to handle front office and back-office work.”
“hose that are providing tools that are core to businesses and solving these complex problems will be more needed than ever as face to face engagement becomes less favorable in the current climate,” she said.
Peter Colis also explained that young companies with “speed and scale” are likely to fare the best.
“Technology is how we’ll achieve the necessary scale to meet this demand while maintaining excellent customer experiences,” he said.
And in fact, fintech companies who can do this successfully may be well-equipped to expand their business during the corona crisis: “at Ethos alone, we’ve seen a large increase in applications in the past few weeks,” Colis said, adding that “it’s our underlying technology that allows us to adjust to this influx without seeing negative impacts on the services, support, and experiences we give consumers.”
What are your thoughts on how the coronavirus is impacting startups and the VC world? Let us know in the comments below.