Confused — are VCs open for business?

Entrepreneurs would be forgiven to be confused by the mixed messages they are getting right from the venture world, with emphatic declarations of “we are open for business” combined with fast evaporating meeting schedules.

The answer of course is, it depends.

Any VC with a fresh pool of capital will be looking to invest right now.

Northzone, Dawn, Index Ventures, Accel are not going to stop writing checks. Great companies are built in tough times, and valuations will be attractive. Keep fundraising.

Some funds are not open for business, either because they are taking time to process the new information, because they are assessing how much support their existing founders will need, or because their own investors are asking them to slow down, or all three. These funds would do well to be clear about their current position with founders for whom time is the most precious commodity after cash.

Overall — the bar just got raised, dramatically so, for three simple reasons:

• Macro uncertainty: No one is able to model what the future holds; there’s too much new information coming in week-by-week and we have no clue how long or deep the crisis is going to be.
• Micro uncertainty: all investors are trying hard to parse how the crisis is impacting individual businesses. Our founders are getting mixed signals on a daily basis — some clients are delaying, sleeping leads are accelerating — which makes forecasting a very hazardous game.
• Refinancing risk just went up: we don’t know if the capital markets will be open by the time a startup needs it next round of finance.

Uncertainty kills decision making like nothing else. Risk tolerance has gone down. Risk / return equations just got recomputed. Paring it down to the basics of multiples and IRRs, venture capitalists look at investments in the following way:

• What ownership can I achieve today?
• How much capital do I need to take this through to an outcome and at what subsequent valuations can I raise?
• How big is that outcome going to be and how long it is going to take?

Two of these are negatively affected by the pandemic, and one positively (initial ownership).

Founders should not stop fundraising, but need to go to market with crystal clear answers about the risks they control and do not control, extended runway plans and an insane amount of grit. And remember to push the ball down the field every day.

There’s money to be raised, but it just got a lot harder.

Onward.