What to expect while fundraising in 2021

DocSend CEO Russ Heddleston peers into a post-pandemic future

At the end of 2019, no one would have predicted what an unpredictable and difficult year it has been for both startups and VCs in the fundraising world. Now we are staring down the end of 2020 and looking toward what we all hope is a better, safer 2021. What will this new year bring? With an end-of-year sprint to close deals, the anticipation of a new presidential administration and the hope of a COVID-19 vaccine on the horizon, startups and VCs know that change is on the horizon — but how much of that change will be positive?

As 2020 proved, no one can say for sure what 2021 will bring, but I’d like to put a few predictions on the table based on DocSend’s data and research, including the DocSend Startup Index, as well as some trends I’ve seen and my own experiences. These predictions center around how we’ll fundraise post-pandemic, how the funding divide may widen for some, what fundraising activity could look like into 2021, a few sectors we think will fare well and will incorporate some tips on how to succeed in the new year, no matter what comes our way.

We’ll interact through a mix of the old and the new

The pandemic forced all of us to drastically change how we work and interact with colleagues and clients. When the pandemic subsides and vaccines are widely available, in-person meetings and gathering back at the office will definitely resume, but it’s safe to say the old ways of networking and fundraising won’t shift back 100%. Founders and VCs alike have navigated the ups and downs of remote networking and fundraising interactions and will stick to what works and what doesn’t.

Is traveling to a conference the best way for a founder to have a chance at meeting the VC who is right to support their business? Will a VC want to drive an hour through Bay Area traffic for an in-person status update meeting on their latest investment? Zoom fatigue aside, video conference calls do have some benefits — efficiency, no travel time — although not all meetings are best conducted virtually.

No matter what 2021 has in store, founders can still take proactive steps to help them succeed in their fundraising efforts.

The extent to which businesses go in-person or stick to virtual meetings could depend directly on what round of fundraising they are working toward or have completed. Businesses in the pre-seed round might stick with more Zoom meetings in order to conserve resources.

Founders in the seed round will likely split between video and in-person meetings as they are under pressure to show traction in this round, as we found in our report on seed fundraising, yet will also need to conserve resources and time. For Series A, they might have to meet less in person because they have established relationships with their investors. Series B might see more in-person meetings as their business has reached a level of complexity that is difficult to communicate via a deck or video conference.

The funding divide may widen for those outside Silicon Valley

When the pandemic struck, founders suddenly operated in a more level playing field when it came to connecting and networking with VCs outside of their region. With video conferencing and online networking widely accessible, barriers based on geographic location were knocked down. However, as in-person events might fill our calendars once again in 2021, founders outside of VC hotspots like Silicon Valley and New York might find themselves at a disadvantage once again.

With new leadership, we hold hope but also take pause

In anticipation of a new presidential administration, we can take a look back at our historical data to see how fundraising unfolded at the beginning of 2017, when the Trump administration took office. According to historical metrics, an administration change can depress the fundraising marketplace until things have settled. In 2017, after President Trump took office, activity didn’t pick up until the week of May 1, which was a far later spike than we see in most years.

interest in pitch decks, 2016 - 2020

Image Credits: DocSend

However, I don’t expect 2021 to exactly mirror 2017 in terms of fundraising activity. We are living in two different worlds. The pandemic and a struggling economy have dramatically altered the landscape. Similar to other economic downturns, 2020 saw a spike in the number of businesses being started up.

These businesses, which will likely be eager to get started on their seed round of fundraising, might get an early jump on fundraising at the beginning of next year. Early signs of successful vaccines could spur more confidence in the economy and open up more business and investment opportunities.

Key industry sectors driven by tech will prevail and grow

While the pandemic has shut down certain industries, such as in-person entertainment, hospitality and travel, COVID-19 has reinvigorated other industries as the demand for products and services has shifted. Consumer tech and enterprise tech are seeing surges as people are working from home and also finding new ways to stay entertained and connected with friends and family.

We are seeing a number of pitch decks in the areas of digital health, remote wellness, clean tech and energy, so we anticipate those sectors will continue to see more growth and opportunity. Even with vaccines on the horizon, we still have a long way to go before widespread distribution, and I anticipate we’ll continue to see demand for products and services in these areas, adding fuel to startup activity.

Four tips for fundraising success in 2021

No matter what 2021 has in store, founders can still take proactive steps to help them succeed in their fundraising efforts.

Continue to network. Find people to meet. Networking can not only help you get connected to the right VC, but you never know what you’ll learn or who you’ll meet. It’s always helpful to expand your circle of contacts, as well as your knowledge base.

Find mentorship. Recognize that serendipity isn’t everything, and you need to continue to make those connections. Keeping the right people in your corner is always a good strategy. Not just for the fundraising phase of your business, but for guidance in managing the business to its next stage of success (or if you’re not successful, knowing when to move on).

Take advantage of both the virtual and physical world. Be prepared to continue to connect with potential investors online, use Zoom for meetings, share your pitch deck online and adopt virtual data rooms to facilitate due diligence. At the same time, be ready to take advantage of opportunities to meet with your VCs and investors in person and attend special-purpose VC networking events with clear agendas when it becomes safe again and as it makes sense for where you are with your fundraising journey.

Remember that fundraising is hard. Keep in mind fundraising is going to take longer than normal. Despite being in this COVID-laden fundraising landscape for a while, we are all still learning to adapt. Be cognizant of how much time you will need to get through this process. Also, if you find one great investor, don’t beat yourself up if you don’t get five competing offers for funding. Focus on the win and move forward.