Avihai Michaeli
Business Executive & Startups Mentor (M&A/Fundraising)

Feudalism Revived?! A Medieval Business Structure Returns to Startup Funding

Image by ArtCoreStudios from Pixabay
Image by ArtCoreStudios from Pixabay

As Covid-19 strikes, Seed Startups will need to replace their search for funding with a simpler “Protection” model. “Funding Replacements” by Corporate Companies is such a protection. In Medieval times, this “protection” business model was called “Feudalism”.

As an entrepreneur, you know how the Startup “thing” 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, since you have a running solution and customers, you’ve officially became a 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” to become a successful company.

However, life is all about timing. And the current Covid-19 (Coronavirus) 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.

You’ll have to look for a different lifeline – which will not come from investors.

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).

So why am I calling taking over a Startup “Feudalism”? Why isn’t it simply a Merger & Acquisition (M&A) process, like it always has been? The answer is simple: supply and demand in times of crisis. What other choices do Startups have in times like that? It is obvious that after the Covid-19 crisis, the markets will be flooded with Startups trying to survive. Most will shut down, and Corporate Companies know it, and probably waiting.

In times of crisis, Startups which are lucky and taken “under the custody” of a Corporate Company won’t get cash for it, as they would if their company got sold pre-Covid 19 time. 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 – or as the C-level manager at a Corporate Companies will say about those kind of deals- “it’s not personal, it’s strictly business.”

 

 

 

About the Author
Mr. Avihai (Avi) Michaeli has served in Business Executive positions in the Israeli business ecosystem, in the recent 25 years. Avihai held positions like VP Sales & Marketing, and few times as CEO. After managing a Startup for 6 years, on behalf of its investor, it got acquired. Ever since then he started mentoring various Startups on behalf of their investors, helping them get funded or M&A's. Avihai servers either as an advisory to the Companies management, or take an Interim active role. Mr. Michaeli is also doing innovation scouting for various international brands, introducing them to relevant Startups upon their needs. Avihai writes posts and articles about the Startups ecosystem and gets interviewed about the subject quite often
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