Cryptocurrency analyst. Founder and editor at btcpeers.com
Believe it or not, the investment world is restructuring to cope with the economic implications of the COVID-19 pandemic. Even though some experts have predicted narratives that will hold sway over this sector, there is, however, no definite projections regarding the magnitude of these changes and how much it will affect Founders and investors. Due to these uncertainties, Venture Capitals, Angel Investors, and Founders might tweak existing fundraising mechanisms to withstand new challenges.
Therefore, I decided to interview an expert in this sector, Victor Larionov, CEO of Industry 4.0 Investment Banking. In the interview, Larionov discussed some of the major talking points in the investment scene and how his company is responding to them. Below is an excerpt from the interview.
The stock market crash and the coronavirus epidemic have caused many investors to panic.
How could this situation affect investing?
There are different types of funds and private investors. Given the crisis, many of them may tighten their investment criteria or stop investing altogether - but they will never admit it. So, you will never know about it and will continue to spend your time on meetings in vain. For startups, as never before, it is important to closely monitor the experience of funds in order to increase chances of making a successful deal.
So, which startups are the ones that could pop?
For obvious reasons anything medicine-related will be of great interest to investors. The Fintech industry can benefit as well, especially those who work with p2p payments and processing/escrow solutions for freelancers and people working remotely all over the world. Gig economy and remote working are just booming right now. We also see a rising demand for p2p и p2b lending solutions.
Also, during this time of self-isolation, media platforms, news resources and social networks will be in a good position.
For example, Netflix shares have grown by 15% since the beginning of this year.
In different countries, firms have transferred employees to working from home. As a result, the number of users of corporate file hosting, instant messengers, and everything related with online-collaboration is growing fast. Online stores should be quite successful during the pandemic, especially those that sell digital products.
What should a startup expect at the idea level during this time?
Now is the worst time to find an investor to implement new ideas. If you do not yet have a prototype, a tested hypotheses and some initial revenue, you'll find yourself at the stage where it's just individuals and novice business angels in the mix, and most of them will be having difficulty with their own current businesses. Therefore, they will be reluctant to invest. However, they could become partners in your new business, since their old ones will be comatose for a period of time. A large number of owners of offline companies will seek new ideas and niches that are more consistent with current realities. They will count on a larger share than an ordinary investor, as well as on greater involvement and participation in operations, which will make them more likely partners.
And how will startups which already have an operational product be doing?
Startups that are already executing ideas honed by current realities, and that have a product and possibly even initial revenue, can turn to well-known business angels, super-angels, or investor associations, as well as seed- and venture funds in search of financing. Yes, their focus may have shifted towards full digitalization, but in the near term, they will continue to invest. Companies like this are encouraged to concentrate on their main product, which is in demand right now, and to stop spending money on experiments, instead redirecting it to scale up what is already successful.
Startups and fast-growing companies with substantial revenues still have the opportunity to raise investment rounds from venture funds or private equity funds.
When might the global IPO market recover?
During the first two months of 2020, the global IPO market showed good performance in the wake of activity which was gaining strength in the last quarter of last year. However, the sudden pandemic gave stock markets a painful hit, and, together with other macroeconomic factors, led to shocks on a level comparable to the 2008 global financial crisis. Today, in conditions of extremely high volatility, plans for an IPO would seem rather utopian, both in terms of relevance and in terms of the estimated value of shares. However, many companies continue to prepare for deals, and the number of these companies is growing, so issuers will be ready to rush into battle as soon as the situation allows.
While researching your background, I found a repertoire of leadership-inspiring positions that you currently hold. Can you do the honor of introducing yourself to our audience?
Thanks. Since the early 2000s, I have always found myself in the thick of things in the investment landscape. I established myself in this field with the launch of my company, named Most Marketing, in 2003, which still runs till today. During this time, I have nurtured my expertise in startup funding, expanded my clientele on a global scale, and launched and partnered several organizations across the globe. Currently, I am the CEO of Industry 4.0 Investment Bank, a partner at Singapore-based fund and accelerator, Hax Ventures, and member of Board of Directors of different startups (like SIMPLE, recently established by famous Italian entrepreneur and engineer Alberto Vuan).
Seeing that you are an expert in startup funding and business acceleration, what is the first thing you advise a Founder looking to kick off or expand his/her business via various funding mechanisms?
The first thing to be aware of is the secondary nature of capital to the success of their businesses. Although funding guarantees a better working environment, enough money to pay high-quality talent, and a bogus market and mobilization budget, it, however, does not determine the longevity and sustainability of your company. Instead, the first factor to consider is the efficacy of your startup, the quality of its products, and the viability of the business framework you have adopted. When all this is in place, it becomes easier to attract investors, raise the money you need for the next stage of development, and achieve new milestones.
As a founder, is there a particular time to embark on fundraising campaigns?
We have different fundraising stages. Each has its purpose and the range of valuation set as the targeted capital for the startup’s outlined development or expansion activities. It is left to the Founder, with the help of a fundraising expert, to identify the present status of the startup, the ideal funding mechanism, and the efficient modes of marketing the startup to the right investors. In some cases, I have seen startups skip early funding stages because they have systems in place to push for growth and late seed capital. However, as mentioned earlier, knowing the right time to enable a fundraising mechanism is peculiar to each startup and might require help from professionals.
What are some of the challenges startups encounter when they are on the lookout for new investors?
It is common for startups to lose sight of where they are and what they need. Some are yet to develop an effective market-fit system and might do well to go for investors who are conditioned to play the long game. Likewise, it becomes a bit of a problem for startups to sort all of the legal issues relating to regulated means of raising funds to ensure that they appeal to the investor community. And in cases where startups are pushing for a global presence, it is almost always difficult to finetune existing frameworks and ascertain that global expansion does not taint the business culture that has brought them thus far.
Based on the challenges you have mentioned, what are the ways startups can circumvent these pitfalls?
First, a startup needs to thoroughly analyze the present structure in place as well as create a quality business plan that encapsulates this. Next, it should establish a clear roadmap, detail what each milestone entails, and project possible outcomes. With this, it is easier to spot the right fundraising strategy, determine the appropriate valuation, and attract capital that will help it scale the next stage of development. To make the process hitch-free, the startup must meet all compliance requirements relating to the legality of its business and fundraising campaigns. Truth be told, many things could go wrong. This is why I brought together a team of experts in business acceleration with an eye for identifying flaws and proffering customized solutions.
Can you tell us more about Industry 4.0 Investment Bank and how it fits into this narrative?
Industry 4.0 Investment Bank is a business accelerator and a fundraising enabler that has acclimatized to the global business landscape and created effective templates for startups to establish their brands at various scales. Recall that I earlier mentioned some of the things that could go wrong before, during, and after a fundraising campaign. At Industry 4.0 Investment Bank, we work hand-in-hand with startups to ensure that they seamlessly avoid such pitfalls. Thus, we specialize in the analysis and development of the legal and financial standpoint of startups, fundraising coordination, growth via exposure to a vast network of investors, and so on.
Does Industry 4.0 Investment Bank have a particular niche that it specializes in?
Yea, we have. We are aware of the increased push for digitization and have positioned ourselves as an important piece of the jigsaw. In other words, we target startups relying on established and emerging technologies for the amplification or optimization of services and products. These include the Internet of Things, Artificial intelligence, 5G, blockchain, augmented reality, and other promising technologies.
What about jurisdictions? Is there a region that you cater to?
I believe that one of the factors that set Industry 4.0 Investment Bank apart is its capacity to launch and manage fundraising schemes on an international scale as well as streamline campaigns to a particular region. Thus, we have coverage in major regions including the USA, Europe, the Middle East, and Australia. What this means for our clients is that they can access a wide array of options as regards their preferred expansion plan. Likewise, it means that we are familiar with the compliance requirement for operating and hosting fundraising programs in all the regions I just listed.
How do you go about expanding the reach of your clients?
After a successful spell in their original location, Founders and CEOs often opt for plans to take up more challenges and push for increased market visibility. This is where we enter the fray. We analyze the startup’s successes and frailties from the moment it launched, create a global business strategy that will help in the next phase, and determine the validity of the entire process. Once we ascertain that the startup is ready to take on more regions, we begin to use our steep influence in the investment landscape to introduce the startup to potential investors. On the marketing side of this process, we have created a cordial relationship with top media platforms and have experience in nurturing responsive investor communities to achieve fundraising goals.
You have mentioned meeting compliance requirements a couple of times now. Can you please expatiate this and tell us how Industry 4.0 Investment Bank goes about this?
Compliance is a very sensitive part of the entire process. From what we have learned so far, startups unable to nail this aspect of their business will likely find it difficult to onboard investors. And so, we take regulatory compliance seriously. Hence, after examining the financial strength of the startup, the next thing on our list is the regulatory standpoint. We ensure that the company ticks all the right boxes relating to regulations put in place to protect investors and the startup itself. Moving forward, we provide guidance on the requirements governing each type of fundraising campaigns in various jurisdictions. Compliance also comes to play after the fundraising stage, especially all through the phases of implementing the roadmap. Therefore, it is safe to say that compliance is an unending process. And for this reason, we dedicate a large chunk of our resources and manpower to it.
What about the dwindling valuation of funds made available? How do startups know when they are being shortchanged?
Yes, startups should not expect to rake in as much as their original fundraising goals. While this is a given, it is imperative to re-evaluate expectations at different rounds and set new caps based on today’s reality. Hence, capitals that fall below this new metric is likely a ploy by investors to capitalize on the current economic state. Nonetheless, it is crucial to get multiple offers, which depends on the quality of your fundraising campaign, and then make informed decisions. At this juncture, Founders ought to differentiate between high-quality money and high price. Investors that agree to your high fees might be the first to jump ship at the first sign of trouble. In contrast, some investors might offer lower capital relative to what others are offering, but are experienced enough to understand the rudimentary of business cycles.
How does the travel ban affect fundraising campaigns and how can startups evolve their programs?
One-on-one meetings and physical presentations are impossible at this time. Though there are various other means to get this done, investors have always found physical assessment a better means to adjudge the credibility or commitment of Founders and CEOs. However, for now, they have to make do with platforms like Zoom, even as startups are burdened with enabling more impressive fundraising campaigns and business cases. It is important to maintain strong visibility and partner with business accelerators with a link to a proven network of investors.
How can startups pivot during these times, knowing fully well that the margin for errors is smaller than ever?
Like I said earlier, this health crisis has opened new opportunities for startups that are ready to take a leap of faith. First, they must identify ways to digitize their businesses. You want customers to engage with products even if there are restrictions on movement. Fortunately, this is our specialty. We target companies taking advantage of emerging technologies to optimize redundant systems. Also, it is advisable to conserve cash by eliminating unnecessary processes and systems. The goal here is to promote sustainability because cash inflow from investors is not as guaranteed as before. For what it is worth, I believe that this period will help investors identify efficient entrepreneurs, which is a positive development.
So, I presume that you are still on the lookout for promising startups? Or will you be sticking to your existing clientele until the pandemic is over?
We are aware that there are opportunities, regardless of the prevailing market condition. Just as startups have begun to finetune their business strategies, we have also developed frameworks that will help us identify new ways to market our clients to investors. Importantly, we already have a robust network of investors that have come to trust our proficiency in the investment landscape. Hence, the health crisis does not stop us from taking on new projects, as long as the process and startup meet our high standards.