Will “Protection” Become The Pandemic’s M&A Business Model?
As Covid-19 strikes, and 4 out of 10 Early State Startup will close down*, Startups need to replace their search for funding with a simpler “Protection” model. “Funding Replacements” by Corporate Companies could be such a “protection” .
As an entrepreneur, you know how the Startup story goes. You have an idea (Pre-Seed stage), you get your Minimum Viable Product (MVP) running. The first users try it, comment on it, you improve it, and gain your first paying customers. Congratulations, now, that you have a running solution and customers, you’ve officially became an Early Stage Seed Startup!
Now comes the time for you to go and seek funds to keep the momentum going, try to make your Seed grow, and later on “flourish” it to become a successful company.
However, life is all about timing. And the current Covid-19 (Coronavirus) pandemic crisis, has made it almost impossible to gain seed funding, unless of course, your Startup addresses previously unforeseen opportunities, and actually profits from it. Which will get the investors attention.
Assuming that this is not the case, and your Seed startup is among the 98% of Startups that are badly affected by the situation, you’ll have to look for a different lifeline — which will not come from investors.
Looking back at history, there were several business models in times of crisis, to enable small businesses to operate, and to provide security and certain wealth for its owners. One of them was called Feudalism.
Feudalism was a combination of legal, economic and military customs that flourished in medieval Europe between the 9th and 15th centuries. Broadly defined, it was a way of structuring society around relationships that were derived from the holding of land in exchange for service or labor.
The modern-day Feudal Lord is a Corporate Company. They own the “land” and are not troubled with “survival issues”. Like any big company, they have their needs — mainly for additional tech and qualified teams (as well as additional needs).
In times of crisis, early stage startups which are lucky and taken “under the custody” of a Corporate Company will be taken as a part of “Tactical Exit” model.
It will not get cash for such “Exit”, But, the Startup will gain a lifeline — which will come in the shape of “credit line”, “salaries”, and helping hands. In return, the Startup will give the Corporate Company its Tech, IP and knowledge, or, as the Wiki of “Feudalism” calls it, its share of the deal will be “Service and Labor”.
True. A lifeline in times of crisis is a huge benefit. However, entrepreneurs should understand what they can and cannot expect to gain at such a time. “Life-line” was probably not the reason you decided to have a startup at the first place. However, at times when a one in a century pandemic crisis strikes, and when 4 out of 10 of colleagues are in a process of closing their company.- The “Protection” model may as well be, the best you could wish for.
