Attracting investment capital in the post-Covid-19-world

Despite the ongoing COVID-19 pandemic, North America’s venture capital ecosystem is showing significant strength. While 2020 was a banner year for Canada’s venture capital industry (Canada saw its second-highest level of annual VC investment), it turned out to be a record year for the United States.

According to the National Venture Capital Association,

“Venture-backed exit activity hit new records in 2020 [in the United States] on the back of large IPOs during the second half of the year. The 103 venture-backed IPOs representing $222 billion in exit value in 2020 marked the highest annual exit value on record.”

However, none of this is to say that it’s business as usual in the venture capital world.

Covid-19 has fundamentally changed the way businesses operate, and as a result, the way investors consider deploying capital. For founders and entrepreneurs to attract investment capital in the post-Covid-19 world, they will need to demonstrate a heightened level of focus, dedication, and responsiveness.

The New Rules of the Game

Harvard Business Review (HBR) recently wrote in an article titled, “How to Create a Winning Post-Pandemic Business Model,”

“In order for your company to succeed in the post-pandemic era, you must do two things well: Select your strategy carefully to target a defensible market segment and tailor your business model to capture and dominate your target market.”

Sounds relatively simple on the surface, doesn’t it?

However, as HBR goes on to state, the problem is that:

“The pandemic sharply accelerated market fragmentation.”

The Wharton School of the University of Pennsylvania defines market fragmentation as:

“. . .the concept that all markets are diverse and composed of different segments, reflecting different needs, wants, responses to marketing messages, and behavior.”

Herein lies the crux of the issue: the more fragmented a market gets, the more competitive it becomes.

As I’ll explain below, there are three things that founders and entrepreneurs can do to overcome the challenges that market fragmentation brings, and as a result, increase investor confidence in their company’s investment opportunity.

Three Things Investors Want to See Post-Covid-19

1. Focus on a single market

Your startup should be hyper focused on a specific market. Although investors have traditionally viewed multiple market verticals as a plus (given that they signal future growth potential), market fragmentation has reduced the viability of the “hub-and-spoke” vertical business model.

At most, mention one or two adjacent market opportunities. Otherwise, you run the risk of coming across as unfocused.

2. An omnichannel marketing strategy

This is where many startups continue to fall short of the mark. Instead of crafting an effective omnichannel marketing experience, they focus on one channel: their desktop website. Unfortunately, this often means that companies neglect the quality of their mobile website experience, e-mail and SMS strategy, and social media platforms (among other things).

The point of omichannel marketing is to provide a seamless experience for customers, regardless of what device they use or where they interact with your brand. To defend and dominate your market post-Covid-19, omnichannel marketing is a must — not a nice to have.

3. A business model capable of weathering pandemic-related challenges (e.g. supply chain disruptions, social distancing, future potential lockdowns)

Last but not least, you want to derisk your company’s investment opportunity for investors as much as possible — and that means having contingency plans for future public health crises. With Covid-19 front and center in the minds of investors (and likely for many years to come), ensure your business model isn’t completely predicated on a singular supplier or physical interactions.

Venture Capital Will Change Post-Covid-19

Much of what attracts investors today still does, be it a disruptive business model, an underserved market, or an experienced management team. But in the fragmented post-Covid-19 world, founders and entrepreneurs need to make some tweaks to the way they seek capital.

Have a distinct focus, dedicate resources to an omnichannel marketing strategy, and future proof your business as much as you can for pandemics. If your efforts are successful, competitors will have a hard time taking market share away from you — and potential investors will recognize it.

Aaron Hoddinott

Investor and marketer willing to take big swings at bold ideas.

Aaron Hoddinott

Investor and marketer willing to take big swings at bold ideas.