“Start-ups have to learn to make do with less money.”

About half of the business angels surveyed by the Swiss ICT Investor Club (SICTIC) and Business Angels Switzerland (BAS) say they want to invest less or not at all in new start-ups in the future. Are you surprised?
The less experienced angel investors in particular were certainly surprised by the force of events in the wake of the corona pandemic and now need to pause for thought. Those old hands that had already experienced the financial crisis tend to go on; they also have a longer-term perspective over five to eight years. In general, however, one has to say that the risks have increased for angels. For me, the focus is not even on the risks of overall economic recession.

But rather?
The angel scene is part of an international ecosystem. A private seed investor must be able to assume that venture capital investors are ready to support start-ups in the next growth phase. At the moment, however, we are seeing a global decline in venture capital investment: the capital invested in series A and B rounds shrunk by about 23% in the first quarter of 2020. And that’s just the beginning: many rounds that began negotiations before the pandemic are still ongoing.

What does this scenario mean for start-ups?
It will definitely be more difficult for new founders. Those angels that are still active are now concentrating on their portfolio start-ups.

When the money runs out, valuations drop. Do you have any idea how much they might fall?
The majority of angels we surveyed assume that valuations in future rounds will be about 25% lower than before the pandemic.

That’s a marked slump. What can start-ups do in future to compensate for this lack of equity?
Companies should focus on the customer benefits of their solutions, in order not to have to sell themselves below their own valuation. Investors will avoid start-ups that run unpaid pilot projects. Annual salaries for founders in the six-figure range are also probably a thing of the past.

The scientific and technical quality of start-up projects is not affected by the coronavirus. Can lower valuations also be an incentive to invest?
We are trying to convince our business angels of this. We have suspended the traditional angel apéros, but we are conducting virtual pitching events and digital training modules, and have equipped all our members with a Beekeeper account for group chats and insider news. The response has been very positive, which shows us that interest in innovations and cool ideas is continuing.

The results of the survey can be downloaded below.