Despite Coronavirus, Many Early-Stage VCs Continue Business as Usual
We interviewed early-stage VCs to see how the global pandemic is impacting their funds and companies
Given all of the uncertainty in public and private markets, there have been numerous headlines and reports of VCs hitting pause during the coronavirus epidemic. At Connetic, we have been operating as a remote VC for the past 2 years with a completely digital investing process so very little has changed for us. We are still writing checks and looking to see as many opportunities as we can.
We weren’t sure if we were alone. So, we thought it would be helpful to check in with a few other early-stage VCs to see how they are adapting to the pandemic and to see if anything has changed in their world.
I interviewed 4 early-stage VCs with offices in Chicago. If you don’t have time to read through the full interviews, here are some highlights:
- All funds are still actively investing and not changing their size of # of checks written
- Remote working is the only significant change to operations
- Capital efficient startups are back in
- Key advice to early-stage founders is to get lean, overcommunicate, and spend more time with existing investors
- Effects of coronavirus are likely valuations will be lower but there will be a lot of exciting innovation that is created during these types
I’ve included additional details about each of the funds below in case you are a startup actively raising and believe one of them might be a fit for your company!
Is your fund still investing?
Brad (Connetic): Yes, we are still investing, we have been a #remote VC for close to 3 years, so nothing has changed for us.
Lance (KB): Yes.
Victor (m25): Yes.
Matt (MTT): Yes.
Has your target number of checks or investment size changed?
Brad (Connetic): No, we will stay on target, in fact we could speed up because of this.
Lance (KB): We periodically evaluate our strategy and adjust check size if needed, based on the market environment broadly, but I don’t foresee us substantially changing our first check amount.
Victor (m25): No.
Matt (MTT): No.
What has changed to your operations?
Brad (Connetic): Not a single thing, other than we don’t physically congregate as often or as close to each other, but with our Wendal platform remote is what we do.
Lance (KB): WFH, which is probably obvious. We’re still taking virtual meetings with startups, engaging with industry execs and co-investors, etc. During this period, we’re spending more time with the portfolio to help navigate these uncertain times as well.
Victor (m25): We are doing a lot to actively assist our portfolio companies that are facing new challenges. For example, helping them with SBA loans, helping them work out plans to extend runway/ reduce burn, and finding alternate sales channels for those that relied on conference/trade shows and in-person meetings.
Matt (MTT): Less face to face meetings. Longer diligence timelines.
Are you changing your view on certain companies or sectors?
Brad (Connetic): Yes we will, but its moving to fast right now, so things need to settle before our confidence is high, we still love all the things we loved before
Lance (KB): Traditional/direct sports — venue tech, fan engagement, sports-betting, etc — has taken a direct hit, so I think those companies/funding rounds have a less predictable near-term future; however, at some point normalcy around sports will return, potentially a new normal, and we remain bullish on the sector. On the other hand, our digital health/wellness/fitness and gaming/esports verticals are already seeing increased demand during this time, as people spend more time at home.
Victor (m25): We are doubling-down on cash efficient startups and those with strong unit economics. There are some industries that will be longer-term positively impacted that we are interested in (healthcare for example).
Matt (MTT): No. More focused on capital efficiency.
Are you worried about your portfolio and long-term fund performance?
Brad (Connetic): No, venture capital especially at our lifecycle of both early stage and early in our investing cycle, this is an opportunity of a lifetime, if anything things just got better for us for two reasons: first is all barriers to digital innovation for tech companies to sell into big organizations will now fall and second; this disruption will wash out weak startups, leaving strong extremely viable investment opportunities left. I believe Airbnb came out of the 2008 Great Recession, as 1-billion-dollar example.
Lance (KB): Not really / too early to tell. The economic impact from COVID-19 will, in general, be significant, but a lot of unknowns remain. I think our portfolio is well-positioned to weather the storm, but a prolonged downturn can have some serious negative effects on any portfolio, ours included. As far as fund returns, we’re only about 50% invested and believe there are still some awesome companies/founders in our focus areas to be built/funded. Amazing companies will fail while others will rise out of necessity during this time. We still remain positive on the portfolio/fund’s prospects, but also realize challenging times are ahead.
Victor (m25): No — many of our companies are positively affected (we’ve seen double-digit revenue jumps in a week). Most of our companies that are struggling have plenty of runway and will have time to come out of this temporary setback.
Matt (MTT): Of course. We are doing portfolio triage right now.
What is your advice to early-stage founders right now?
1. Get lean, now.
2. Redo your financial plan, business plan, fundraising plan
3. Way overcommunicate with investors
4. Pull as much money in now from every source you can
5. Stay positive this too shall pass
Victor (m25): Don’t try and raise money from new investors (at least new investor conversations) — wait until there is at least some certainty of where the pandemic and markets are going. Overreacting to conserve cash and elongate runway is the right move here.
Matt (MTT): Be capital efficient
Are there any concerning dynamics regarding the current crisis and running your fund?
Brad (Connetic): Just morale, the media is so terrible and uses very scary adjectives that embellish many things, and if you hear something too much you can start to believe it. We will be fine, the nature of our short term revenues are guaranteed, and I already mentioned long term performance opportunities.
Lance (KB): As it relates to operating the fund, the biggest changes/challenges are (1) lack of face-to-face meetings (we prefer spending in-person time with founders we back) and (2) lack of travel (events, conferences, meeting companies, etc.). These aren’t unique to us — they are important pieces for most venture firms, but not necessarily required. Startups, IMO, should and will still get funded during this time and in the face of those challenges — it just may be on a different timeline.
Victor (m25): We are striving to respond with empathy and positive solutions when there are tough choices being made all around. Thankfully we’ve built up a rapport and trust with our founders that enable us to act with and alongside them in these tough times.
Matt (MTT) None at the moment.
What do you think will be the long-term impact of Coronavirus on Venture Capital?
1. It will diversify it across the globe
2. Valuations will go down
3. Lean startup will be back in style
4. The Pitch is Dead
Lance (KB): New verticals, business models, and operating procedures will rise from this…but many people will sacrifice a lot in the near-term. I hope society continues to focus on collaboration.
Victor (m25): Probably a slow-down — though I don’t know how extreme. That being said some of the best tech investments ever have happened on the heels of economic crisis — so that’s why we are still actively investing!
Matt (MTT) Lower valuations, i.e. similar situation to 2008/2009. The creme will rise to the top.
Are you a startup actively raising or a venture fund? We’d love to hear from you as to how you are handling these uncertain times. Comment below or send us a message!
About the Funds Mentioned:
Connetic Ventures (www.connetic.ventures)
- Connetic Ventures is an early-stage remote venture fund that uses data and technology to increase efficiency and eliminate bias. They are creators of Wendal, an automated diligence platform that provides investment recommendation through a short 10–15-minute screening. Any startup can apply for funding at: https://wendal.io/invite/connetic
- Contact: Chris Hjelm — firstname.lastname@example.org
KB Partners (www.kbpartners.com)
- KB Partners is a Chicago-based venture firm focused on early-stage companies at the intersection of sports and technology. Underneath our sports-tech umbrella, we look to invest in and partner with companies in the following spaces: digital health/wellness/fitness, immersive media, venue technology, esports/gaming, sports-betting/fantasy, etc. We are typically investing in Seed, Seed Plus, and Series A rounds, and leverage our vast industry network and expertise to help companies get to the next inflection point.
- Contact: Lance Dietz — email@example.com
M25 Ventures (www.m25vc.com)
- M25 is one of the most active early-stage VC investors in the Midwest. Headquartered in Chicago, they have invested in 95 companies across 24 regional cities in the past 5 years.
- Contact: Luke Skertich — firstname.lastname@example.org
MTT Ventures (www.mttventures.co)
- MTT Ventures is a pre-seed generalist fund. We focus on companies with post-money valuations $7M or less. We add value by helping the company fundraise through our 120 VC and angel group network.
- Contact: Matthew Taylor — email@example.com