COVID-19: How Can Investors Mitigate Risk?

Society today is experiencing a time like no other.

A lockdown of over a quarter of the world’s population has been sprung upon us. Access to everyday essentials like food and space has been severely limited, with government decree that people are to only leave their homes once a day.

Naturally, a seismic event like this has impacted everything in its path, leaving no individual or business spared. Since mid-February, we’ve seen lots of investors withdraw from investments in response to COVID-19, creating even further pressure on thousands of start-ups and scaleups across all sectors. Sadly, more will be applied in the coming months due to the movement limitations impacting any travel, tourism or hospitality businesses.

It’s going to be a difficult few months for many, but one of the best ways to mitigate risk is to invest further whether this is in time or money. Sales and the financial runway have undoubtedly taken a hit, resulting in the need to protect your asset. A quick bridging loan or purchasing some additional capital might solidify a venture at this time.

By simply spending any spare time you have with their executive team, you can help to guide them through these challenges, ensuring a solid return on your investment in the future and placing yourself at the front of the queue for their next financing round once the company returns to health.

This is clearly a very worrying period but even in these conditions, we, at Seedlegals, have seen many reasons for optimism for both businesses and investors.

Firstly, there are many companies which are now literally saving lives. Those in online healthcare, manufacturing and even fitness apps are helping to keep the country moving. The UK is one of the most obese nations in the world today and helping those to keep as active as possible is a very necessary service.

Sales and the financial runway have undoubtedly taken a hit, resulting in the need to protect your asset. A quick bridging loan or purchasing some additional capital might solidify a venture at this time.

These businesses will be placed under more strain than ever before, none more so than food delivery services like Deliveroo, Uber Eats and many of their smaller competitors. Prime Minister Johnson called on the British public to use these as much as possible, which naturally will do wonders for their valuations but will require significant investment to keep pace, grow and develop as required.

Therein lies the opportunity for investment, which otherwise would unlikely have become available. The opportunity to support these businesses, both financially and with experience, could make all the difference to keeping the population well cared for and supported as long as required.

This challenging time will also shine a light on certain sectors that otherwise would not have seen much attention. In the past three years, somewhat surprisingly, no individual sector has seen significantly more investment than another. SeedLegals data has been fairly consistent with investors being agnostic to the industry they back. Now, however, we think it’s likely that MedTech, EdTech and social impact start-ups, as well as the others already mentioned, will see more attention than their peers, at least in the short term.

Of course, as is always advisable, diversifying one’s strategy is key at this time. As we’ve already seen, which is likely to continue for the rest of the calendar year, global markets will see a lot of turbulence. Certain technologies will fall in and out of favour, as well as companies. Ensuring you are backing a plethora of innovative firms should ensure your capital is as well protected as possible.

A number of investors will have been scared out of the market following the recent troubles but most advisers would suggest that we are now in the perfect time to invest. Companies need support and their valuations are likely less than before, moving the relative price and opportunity balance in favour of the investor.

Another shift could see the change in relationships between investors. One thing I’ve long been surprised about is the lack of venture capital and angel “chatter”. Every hour of every day we see founders speaking with their contemporaries about problems, issues, solutions and suggestions. Now, I appreciate that most of the time these would not be competitors, whereas on the investment side of the table if you were to give a tip to someone, they could attempt to steal your lunch money. With the global challenges upon us, a tighter knit investor community will hopefully emerge, especially in the high-growth tech sector which can only be a good thing for all concerned.

Ensuring you are backing a plethora of innovative firms should ensure your capital is as well protected as possible.

Staying on this theme, I genuinely believe that the best way to mitigate risk at this difficult time is for everyone to work together. If there is more of an open dialogue then an individual’s concerns or worries could be allayed, leading to increased investment in our society bringing us back to growth. And if you’re concerned about your level of contribution, there are many options around top-up investments to provide enough support to back any company whilst reserving the right to hold back some cash at this time.

It is no surprise that investors are being extra cautious about their money, and rightly so. However, the value proposition for the large majority of companies is still there and in most cases, the leadership team hasn’t changed. The opportunity is still ripe, the founders are still passionate, if not more so, but we just need to help this haze pass by getting involved now, before it’s too late. This will be the best way to break the virus’ hold on our economy.

Leave A Reply