One year into remote venture deals; what’s changed?
Written by Alyssa Spagnolo, Associate, OMERS Ventures
It’s been a year since most of the world started working remotely. Working in tech, our jobs afford us the privilege to do most of our work behind computer screens, in the safety of our homes. Even so, there has been a learning curve for most organizations as we all transitioned to a completely remote world.
Early on in the pandemic, our team at OMERS Ventures wanted to explore how our counterparts were dealing with the prospect of making investments in such a new and uncharted landscape. So much of our work previously relied on meeting and getting to know people in person. We surveyed 150 VCs on best practices for VCs doing remote deals. This was initially for our own insight, but it became evident quickly that sharing the findings would help us all as we collectively adapted to a “new normal”.
At the time we did our outreach, there was optimism in the market and, I believe, a sense that remote working might only last a few more months. Well, hindsight is 2020, and we know now that was not the case. One year later, there is finally light at the end of the tunnel, as a result of widespread vaccinations. That is an extraordinary development in its own right, but one for a different post altogether.
What have we learned?
We felt now was a good time to conduct our study once again, to capture current sentiment around how VCs are approaching investing today, and any lasting changes we should expect to see in the deal process in a post-COVID world.
In March 2021, one year into remote, we went back to the VC community and collected input from nearly 100 firms spanning North America and Europe. We included the same set of questions from our previous report, but also included new questions that capture insights for post-COVID investing plans relating to travel, meetings, and quality of life.
While we are all eager to return to some parts of our normal lives, it is clear the pandemic has significantly altered the way we work, and is likely to result in new deal processes for some time to come.
To see the full data set, see the embedded presentation below. For summarized highlights, scroll down.
We learned that nearly all, a total of 97% of firms, had completed a fully remote deal by January 2021, a vast difference from 40% of firms who had in June 2020. This signalled that VC firms have successfully adapted to the COVID environment and found a way to get comfortable with remote deals.
While the highest percentage of firms are still opting to implement new processes during their remote diligence, almost the same number of firms reported they are opting to not change their process when doing remote deals, which is a significant change since we last ran the survey. This indicates firms have grown comfortable with the remote diligence process.
When we take a look at the detail, some new processes have grown in popularity, with an increased focus on reference calls, and having a preference for friendly VCs already on the cap table taking the top spots. Some processes that have become less popular over time include having a preference for founders the firm has met in real life pre-pandemic, likely due to this limiting the pool of available companies to invest in.
Notably, deal activity did not slow down in 2020. A stark contrast from June 2020 where more than half of firms reported some level of decline in dealflow, as of January 2021, nearly 80% of firms reported a full recovery in dealflow to previous levels, or an increase over previous levels. It’s clear that fundraising was significantly concentrated in the back half of 2020. It appears there was pent up demand from the lull in the early months post pandemic, which created a hot environment, and effectively drew more activity into the market.
In terms of shifts in time management for VCs, it appears portfolio triage is largely on the decline, with only 19% of firms reporting spending more time on the existing portfolio.
Sourcing has garnered the largest increase in time spent, as well as the highest concentration of VCs reporting spending more time here. This is likely due to having fewer opportunities to meet with others in real life, at events, for example, and needing to get creative in finding ways to network. In general, the way VCs are spending their time has normalized, with a large portion of VCs reporting they have not changed the way they spend their time.
In terms of habits that are here to stay, a large majority of VCs report being happier in their careers as a result of travelling less. This fact is likely contributing to VCs reporting they will do many of their founder meetings virtually going forward. That said, travelling is still expected to be part of the job and is expected to be resumed, albeit at lower levels than pre-pandemic if the data is to be believed. Travel is expected to resume most likely due to the fact that VCs report having less of a connection to founders in their virtual environment, with only a very small portion (6%) of firms reporting they will conduct all meetings virtually going forward.
We remain grateful that the market is as buoyant as it is, and that collectively founders and investors have found a way to negotiate this new normal. Humans can be notoriously quick to forget, so it remains to be seen if the enduring shifts implied by this data really do come to fruition once the environment allows for a return to ‘business as usual’.