Startup founders in Southeast Asia face an unprecedented challenge in securing funds in 2023 when the global economy is battling many difficulties. Investors and venture capital (VC) firms are risk-averse and are holding onto their funds while waiting for viable opportunities to get a return on investment (ROI). Thus, startups need to understand crucial fund negotiation techniques and other methods for obtaining monetary backing during this lean financial period.
Last year, the International Monetary Fund (IMF) predicted in its Regional Economic Outlook for Asia and Pacific report that the Asia Pacific (APAC) region would experience many economic challenges. The Association of Southeast Nations (ASEAN) was still recovering from the fiscal damage the COVID-19 pandemic caused. There were also new concerns, such as rising interest rates, reduced international trade, joblessness, tech talent shortages, and an impending recession.
Fundraising in Southeast Asia 2022 according to report shows it is expected to be far below the levels of 2021
Other global factors indicated there would be a funding winter in 2023, with investors looking to de-risk their portfolios and focus on well-run startups with high potential. Indications showed that capital would reduce as many investment groups and VCs were hampered by the deteriorating state of their countries’ economies. There were also supply chain disruptions, market volatility in ASEAN caused by geopolitical battles between the United States, the EU, and China over Taiwan, reduced investment exits and initial public offerings (IPOs), and more.
With all these problems to contend with, what should startup founders do to secure funding and support from ideal investors?
Startup tips and tricks for obtaining funding
Startups can obtain funding by applying the following tips and tricks:
Agility is key
Speaking to Technode Global, Jamaludin Bujang, managing partner of VC firm Gobi Partners, said, “The tough situations faced by startups currently in a way act as a natural filter for us to choose the best companies, those which have successfully adjusted themselves to remain relevant to their markets”.
Founders should launch companies with good corporate governance models, establish policies on ESG (Environment, Social, and Governance), and seek growing markets like climate technology (climatetech), health technology (healthtech), and other sectors. Emerging markets have investors eagerly searching for startups to back.
Research investors and VCs
Crucially, startups must research investors, understand their management style, learn their philosophy, and get a clear picture of what they bring to the companies they support. Getting a sense of whom a startup founder is dealing with can help to position the business properly for potential investors and establish how much control they are willing to give to their financial backers.
A founder should have well-defined priorities and objectives before any discussions occur. Then, they can close the deal with investors by focusing on mutually-beneficial agreements.
Startup bosses should understand investor expectations and ensure everyone is on the same page. To accomplish this, founders must employ effective communication and listening skills and review documents to learn what the funding deal entails.
Prepare all the documentation required to get an agreement, such as financial statements, inventory details, the state of human resources, and compliance records.
Learn how to negotiate
It is not just about the money; VC firms provide an intangible value in terms of guidance, experience, and network connections that can be valuable to a startup. Thus, ASEAN companies should understand their leverage, realise VC value, and focus on long-term financing to avoid becoming desperate and selling equity cheaply.
Keep everything as simple as possible. Some startups seek financing from multiple companies, complicating the deals for other investors. Ensure every partner is aware of the role other investors are playing.
Deepak Malhotra, the author of the book Negotiating the Impossible, was quoted in an article in the Harvard Business Review saying that “…untrustworthy behaviour can derail negotiations.” Many startup founders cut corners during fund negotiation, leading to cancelled deals and poor reputations in the investment and startup ecosystem. Moreover, it sends the wrong message about the company’s culture and may make potential employees avoid them.
A better approach is to build rapport and trust by being open with the VC firm and providing timely and accurate reports on the state of the business.
Provide an exit strategy
Founders should pitch investors by explaining how they will obtain a return on investment (ROI) and how long it will take for the partnership to reach its conclusion.
A clear strategy can make investors feel more confident in the startup’s commitment to providing value for the investment.
Even though startup founders in Southeast Asia have a significant challenge regarding funding, the essential part of any fund negotiation is to be willing to avoid a deal that does not fit entirely with the startup’s needs.
Setbacks may happen, but if a deal is too good to be true or lacks vital components affecting the startup’s future, it is better to look for another deal instead.