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  • Originals
  • 21 May 2021
  • 3 min read
  • Words: Northzone

Accelerating out of a crisis: raising capital for further growth in today's environment

2021 has been a record-breaking year for many tech entrepreneurs, but growing a company during uncertain times is everything but easy. Entrepreneurs have to constantly evaluate tradeoffs between expanding markets, raising capital through debt or venture, and reinforcing markets or products. But there are many options to thrive.

In March 2020, we were planning for the worst while hoping for the best (see our article). A little more than a year later, we find ourselves in the second phase of this crisis, where successful companies have many options for growth. The market conditions are unique with plenty of upside if you play your cards right. It’s an opportunity to seize.

How can you take advantage of the VC FOMO? What are the options available on the public market, from SPACs to IPOs? How should entrepreneurs finance M&As in these circumstances? What are the key financial readiness factors to take into account?

To discuss these questions and more, we co-hosted a panel with Neira Hajro, partner at McKinsey and leader of its European start-up practice, and Northzone’s Michiel Kotting, along with Kahoot! CEO, Eilert Hanoa, and SVP of Investor Relations at Zendesk, Marc Cabi. Together, they shed light on the realities of growing a company in today’s environment. Here are our key takeaways.

1. Unicorns are popping up in every sector of the economy

Eight years ago, unicorns almost exclusively came from the world of software and maybe e-commerce. Today, unicorns are popping up in every sector of the economy — education, healthcare, transportation… you name it. As a result, funding opportunities are flowing in and entrepreneurs are facing a new kind of problem: figuring out who to take money from. 

There’s a huge menu from which to pick: angel investors; seed funds — which are multiplying in droves; growth funds; private equity; hedge funds; corporate companies — not to mention pre- and post-IPO investors entering later stage rounds; direct listings; IPOs; and Special-Purpose Acquisition Companies (i.e. SPACs).

Michiel says this decision is a big challenge, but it’s nice to see the pendulum swing in favour of entrepreneurs.

Neira Hajro, Partner at McKinsey (left). 

2. With funding widely available, discipline is essential

When Zendesk went public 7.5 years ago, the IPO route was their best bet, and they had to move to the U.S. to fund their business plan. Born in Copenhagen, Zendesk felt the need to move to silicon valley to expand their business. Young companies today have a much broader pool of funding options, including geographically. Marc always tells entrepreneurs that it’s sometimes good to have scarcity of funding, as it creates discipline around how you burn cash and prioritise your investments. 

Eilert agrees that cash should never be taken for granted, even when it’s already in your pocket. “Think of funding as something you have to manage as a scarce resource.” Having unobstructed access to cash is extremely important, especially when the market dips or politics get in the way of the economy. The moment you feel too comfortable, you underestimate the importance of scalability and risk losing everything. 

3. International investors are opening new doors and opportunities

With Asian investors and companies entering Europe, and European and American founders launching in Asia, opportunities for entrepreneurs have truly gone global. In the past, you had to be in the U.S. in order to get any kind of attention, partnerships, talent or growth. Today, it’s important to build relationships with important players like China, Japan, Korea, and India. Michiel notices how companies funded by Northzone are securing earlier and earlier follow-on rounds.

Marc adds that the internet alone has allowed many SMBs to proliferate across the globe, including in Australia, Southeast Asia and Japan. The market in those regions is very different and you need to ensure you can actually compete with both local and other global solutions. 

Eilert Hanoa, CEO of Kahoot! (right). 

There’s certainly a healthy dynamic of business creation, but it’s important to establish priorities. You can either be dominant in your local market, or you can be a global player. And if you want to be global, you need to be multilingual, which not every company can afford. Going back to basics, a solid business plan, where you identify how you stand out from your competitors and determine solid positioning is what will determine your success. 

4. With more competition comes new inspiration

This expanded international dynamic has unlocked a fresh source of inspiration. Ideas are no longer simply getting copied from the U.S., they’re being adapted to how societies function internationally, whether it’s in healthcare, sustainability, or entertainment.

COVID-19 unlocked its own competitive landscape. Having everyone confined to their apartments with only the internet to connect them meant that talking to an entrepreneur in France from the comfort of your home in California was both easy and accessible. Companies got creative with distributed teams and increased diversity both in talent and in thought. They attracted funds from many international investors as a result. 

5. Picking the right investor is like picking the right life partner

Even with a plethora of investors, finding the right fit is extremely important. Eilert acknowledges that at first, you might not necessarily afford to be picky, but if you can find a team that aligns with your vision and ascribes to your mission, it will significantly increase your chances for success — and may lead to a lifelong partnership. That’s how Northzone became a recurring investor in Eilert’s various growth companies.

 

Marc describes two classes of investors — both valuable in their own right. Long-term investors create the foundation of ownership for a public company and help you navigate your growth trajectory. Funds create liquidity in the market and in your stock, but demand quarterly performance updates. 

Things to look out for when making your selection: make sure roles are clearly defined; never blame investors if your company doesn’t succeed; find a partner you can lean on in both good times and bad. 

Marc Cabi, SVP Investor Relations at Zendesk (left). 

6. Asynchronous and remote work are here to stay

Some effects of the pandemic are going to be long-lasting. Marc warns SMBs that they need to have a digital front office if they want to be successful. And with hybrid teams spanning the globe, asynchronous conversations will become the norm. WhatsApp, Slack, and other platforms will help startups keep their conversation threads alive without having to be online 24/7. 

Of the two main themes discussed above, Michiel believes increased globalisation and increased capital for innovation will not slide back to pre-pandemic times. They’ll keep accelerating.

Michiel Kotting, General Partner at Northzone (right)