Open for business? How the market for venture funding has changed

by 
Deva Hazarika
Sep 25, 2020

With the world pausing due to Coronavirus, it seems that fundraising has stopped, but many investors are just shifting how they do things.

Most Angels & VCs are still open for business, especially early-stage investors

Many VCs and angels (a few examples below) are advertising the fact they’re still doing deals on Twitter, including actively looking for new deal flow:

  • Leo Polovets of Susa Ventures on Twitter: “Our conviction in the innovation, resourcefulness, and impact of entrepreneurs is unwavering.”
  • Toby Coppel of Mosaic Ventures on Twitter: “We would love to hear from entrepreneurs in Europe working on an ambitious idea. Now, more than ever, you want to pick your investors carefully, to know that they are going to be behind you in tough times, won’t panic, and will communicate clearly.”
  • Jason Calacanis on Twitter: “Email Jason@Calacanis.com with your pitch deck.”
  • Lee Edwards of RootVC on Twitter: “We’re starting to look at earlier and earlier smaller checks to see through recession.”

But, investors are slowing down and spending more time on diligence

  • Many VCs focusing on their existing portfolio, slowing down the pace of new deals, and doing more diligence on new deals
  • Some investors are in a holding pattern waiting to see how things shake out
  • Pitching has moved from an in-person process to virtual (mostly Zoom).
  • Reference checks are more important than ever, as some investors are backing out or renegotiating agreements

Jason Lemkin of SaaStr has written a lot about changing market conditions

  • Jason in a Twitter thread: “Even VC funds that are 100% ‘open for business’ and believe in you may get more conservative on deploying capital. Even when they are sure you are a winner.”
  • And in another Tweet: “Much written about broken term sheets, handshake deals, and more this week. But what if your model now predicts 30% of the revenue from a week ago? What if your burn rate is no longer sustainable? Have the honest discussion. Things have changed.”

Deals may get put in a holding pattern

  • Dan Scheinman, Angel, on Twitter: “Until we hit a bottom (which includes a liquidity crisis somewhere), the world will be in a holding pattern.”

VCs are sharing tips on virtual pitches

  • Maren Thomas Bannon of JaneVC in a (super helpful) Twitter thread on how to virtually pitch: “Recognize how pitching by video is different. It’s harder to build a personal connection, but not any less important. A little small talk can help you build rapport. Also, find out their investment focus. Then you can tailor your pitch to their interests.”
  • Mamoon Hamid of Kleiner on Twitter: “Our first signed term sheet for a Series A investment in our new “WFH” world. From partner meeting pitch to investment decision — all done remotely and completely distributed.”

Be cautious, there are some bad actors

  • Jeff Lu of Flex Capital Group on Twitter: “Firms will be tempted to re-trade while “in legal” knowing if you don’t take a new deal, it will effectively kill your business.”
  • Kate Clark of The Information is open to hearing bad actors: “Some VC funds are renegotiating deals with startups (including those not as directly impacted by the pandemic) to get a significantly lower valuation — citing market uncertainty. If this is happening to you, I’m all ears.”

Firms are publishing thoughtful memos & analysis

  • The venture capital market is effectively frozen. Here is why. by Zach Coelius, Angel: “For the foreseeable future the venture capital markets are almost entirely closed while VCs triage their existing investments, and wait to see how this all plays out.”
  • Tribe Capital Memo analyzing past downturns: “To no surprise, there was a large temporary drop in fundraising during the crisis, but interestingly there wasn’t much of an effect on anything else.”
  • Memo from Josh Wolfe, Lux Capital posted on Twitter: ‘Four Flows’ that matter (virus, information, people, capital).
  • Medium post from Compound: “VCs are saying they are open for business as usual, however we’re confident that won’t bear out in the data”.

We will continue to publish summaries of the most actionable help and advice on Twitter. Let us know what you’d like to see here or at hello@flipround.com.



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