We asked over 150 VCs if they are doing remote deals. Here’s what they said.
Written by OMERS Ventures Associate Alyssa Spagnolo
If you’re a founder or a fellow VC, you may be asking yourself “are VC’s really open for business?”. As a notoriously networked industry, startups and VCs have not been spared the challenges in going remote. VC-founder relationships are often multi-year endeavors, and getting the relationship wrong can have high stakes for both parties. While many of us have come to the realization that a big portion of our jobs can be done remotely, including pitches, diligence, networking and events — difficulties continue to arise in fostering new deep relationships over video, and understanding team and workplace dynamics.
In June 2020, 3 months into the pandemic, we set out to find out how VCs are operating in a remote world. In our research, which is shared in detail below, we surveyed over 150 VC firms, spanning the US, Canada, the UK and Europe. We also looked at different stages (pre-seed to growth) and investment styles (lead vs. follow). The survey was completely anonymous and was sent directly to individual investors, by members of our team. We set out to answer the following questions:
- Will VCs do fully remote deals, and under what circumstances?
- What kinds of VCs are leading the way on remote deals?
- Has the investment process changed, and if so, how?
- How has dealflow been impacted by COVID-19?
- Have VCs changed the way they are spending their time?
As we continue to grapple with COVID-19, it is likely that VCs will require some adaptation in the way we work for the foreseeable future. As such, we are sharing our findings to contribute to the collective learning in our industry, and to help us all adapt to the “new normal”.
To see the full data set, see the embedded presentation below. For summarized highlights, scroll down.
Key reflections
We found it reassuring that the industry is so aligned in its thinking — globally. By every measure (economic, health, political), what we see in today’s market is unknown territory. I think as a whole, we can breathe a sigh of relief to see that, for the most part, we are all taking a similar approach.
Over the span of a full quarter, over 50% of VC firms did not do a remote deal. While this could suggest overall Q2–20 VC funding would be dramatically lower than previous years, the data is likely to be messy. There was inevitably high deal activity relating to deals already in progress prior to COVID-19, follow on financings in portfolio companies, unannounced deals, or financings in companies that firms have previously met in person. Given the time lag from initial discussion to deal being done, we will look to Q3 and Q4 as the real indicator of the impact of lockdown.
Many VCs are still trying to figure out what a remote deal will look like for them — but it seems like most are looking for familiarity. It was surprising that VCs haven’t reported changing their investment strategies as much as we would have thought — including writing smaller checks, and investing at different stages, but instead are focusing on supplementing their remote diligence with their network from pre-COVID. The data suggests that most VCs are opting to favor companies they have previously met in person, doing more reference calls, and having friendly VCs already on the cap table.
We were surprised that more than 20% of firms have reported an increase in deal activity. But it makes sense when you dig deeper to see most of these VCs are follow firms — indicating that rounds may be having difficulty closing/filling the subscription amount.
Given the majority of VCs reported some level of decline in deal flow (between 25–50%), this would suggest there is a dwindling supply of companies formally going to market — as many companies opted to extend runway, bridge to their next financing, or approach VCs where they have an existing relationship.
Overall, VCs are spending their time differently. Diligence is likely to take longer, as most firms have implemented 3 or more processes in order to do remote deals. “Portfolio Triage” is far from over — VCs are unanimously spending more time on portfolio companies, especially at later stages.
Research highlights:
- More than two-thirds (69%) of respondents say their firm is giving fully remote deals the green light
- 40% of firms confirmed they have already done a fully remote deal as a result of restrictions put in place due to COVID-19.
- Early-stage firms are 11% more likely to have already closed a remote deal than later stage firms, with 47% already having done a fully remote deal
- US firms were 18% more likely than Canada, and 7% more likely than Europe, to have closed a remote deal
- 49% of firms say their pipeline has held steady or increased since the start of the pandemic
- However, deal flow starts to vary when it comes to lead versus follow-on investors. In fact, more than half (56%) of lead investors reported some level of decline in deal flow
- US firms were 11% more likely than European or Canadian firms to have seen an increase in deals since the start of the pandemic
- 42% of those who plan to do remote deals agree that it will require changes to their existing process.
- New processes implemented for remote deals include incorporating more reference calls, giving preference to founders and teams they’ve already met in-person prior to the pandemic, spending more time on diligence, prioritizing deals that have known firms already on the cap table, and setting a higher bar on traction/metrics
- “Portfolio Triage” is not over with over 64% of VC’s reporting spending more time on Portfolio. As well, given the additional processes, many VCs admit to be spending more time on Diligence
If you have additional thoughts or insights you’d like to share, we’d love to hear them. Please don’t hesitate to get in touch. You can email me at aspagnolo@omersventures.com.
Note: We classed early-stage firms as Pre-seed, Seed and Series A, while later-stage firms are Series B, C, and D+.
