The economic downturn is adversely impacting much economic activity that does not involve online commerce; but small businesses in particular will see an immediate cash-flow shortage; and struggle to make ends meet. If a company has large reserves then it will be able to ride out the recession even if it makes a temporary loss. But smaller businesses face bleaker prospects insofar as they’ve been forced to ramp down–or even halt–operations.
A recession leads to lower investment and can therefore fetter the productive capacity of the economy in the long run. If the recession is short, this lost output may be quite limited; economies can bounce back. In a severe / protracted recession, though, this lost output does more profound long-term damage. This mandates new sources of capital for businesses struggling pursuant to the pandemic-induced economic downturn.
There are few small businesses that possess the credit rating or collateral to secure a conventional bank loan. Now, in the midst of the pandemic lockdown, as small businesses and startups are struggling to get financing, entrepreneurs are seeking alternate sources of capital to launch or shepherd them through this economic crisis. Now, more than ever, it is imperative to look for financing through networking. During the current funding ecosystem, small businesses are looking to connect with investors of all types.
Angel/seed investors finance startups usually in exchange for equity in the company. Unlike a VC, however, angel / seed investors are private individuals (or a group of individuals) investing their own money–providing capital for a set fraction of the company (usually no more than 20%). And while VCs tend to operate in the $2 million-plus range, angel / seed investors usually offer only up to about $1 million…and as little as a few tens of thousands of dollars. Examples include the Adirondack Foundation, who partnered with the United Way in upstate New York.