I wanted to investigate if COVID 19 has made it harder for VC’s & startups to discover each other, for startups to pitch and get funded, and for B2C and B2B customers to learn about new offerings. One might think investors would have been paralyzed by:
· The uncertainty of how long COVID and its economic impact would last
· The near impossibility of in-person networking for founders & VC’s
· Lower spending by consumers either unemployed or fearful of layoffs, and businesses whose spending has been curtailed
· Reduced ability for consumers to discover, touch, feel & experience new products & services physically in retail outlets
9 global experts, with different perspectives, shared their views. To my surprise, all 9 were optimistic that on the whole, things have been much better for startups and VC’s than might have been expected.
Post COVID Acceleration of Disruptive Startup Opportunities
New York based startup investor, Jack Einhorn, shared that when markets are being disrupted, like the current forced acceleration of all things digital, many opportunities are created, and now is one of the most prolific times in history for spawning new ways of doing things.
Ron Gonen, Founder & CEO at Closed Loop Partners, a fund focused on sustainability, shared that investors get excited when the world is changing, creating opportunities, new business models and ways of doing things. COVID has shined a light on the importance of new ways of managing supply chains to respond quickly, transparently, and cost effectively, and with less waste, rather than producing goods far away that are more difficult to access. The increase in wildfires and hurricanes, has accelerated even more, the urgency to find new ways to slow climate change.
According to Daniela Gutman, COO at La Maquinita, the leading co-working company in Argentina and a business professor at Universidad de San Andres in Buenos Aires, during the first months of the pandemic, the VC world in Latin America, like elsewhere, was turned upside down, putting businesses either on hold or in survival mode. For many LatAm startups, COVID became an opportunity. Companies that specialized in pushing digitalization in commerce and work automatization tasks that had a difficult time gaining market share pre pandemic, now saw favorable prospects accelerate, in some cases gaining 5 years expected growth in only a couple of months. According to LAVAC (Latin American VC Association), excluding rounds lead by Softbank, 1st half 2020 was the highest half-year total for deal value on record.
Ignasi Costas, Head of Innovation and Entrepreneurship at DWF-RCD, the benchmark law firm for venture capital and startups in Spain, also observed that while investment activity stopped for a month when COVID surfaced, since then investors have been active and are analyzing opportunities and planning their next moves in the context of the so called new normal. That said, outside of the U.S., investments have suffered more in those countries most affected by the pandemic.
For Michael Nogen, managing partner at U.S. based Overton Venture Capital, an early stage VC fund, the post COVID time frame has been extremely active. Of the 9 companies in their portfolio, 3 were added just this summer. “There’s plenty of capital to be invested, and deals are happening and closing fast, without startups having to drop their valuations. New companies are popping up as people who lose their jobs and need other sources of income come up with ideas for better ways of doing things and solving new problems using new tech capabilities.” Jack Einhorn identified “Mompreneurs”, forced to stay home, as a particularly creative group. They’re also a target audience for some startups.
Pressure to Deploy Exisiting VC Capital
Shaun Abrahamson, is Managing Partner at Urban Us, a seed stage VC that funds startups that help cities upgrade for climate change. His firm was one of only 11 VC’s TechCrunch selected out of 391 across 22 verticals for their list of ”VC’s founders love most”. Shaun and Jack both expressed that VC funds that have raised capital feel pressure to invest where they see opportunity and strong business signals, rather than sitting on those funds, and so they can raise more money and continue growing their funds.
Jack shared that another reason for high levels of recent activity is uncertainty about what the election will bring. Some founders are accelerating their timetables for raising capital, to make sure they have enough cash on hand for changing scenarios. VC’s face similar pressures. Uncertainties about COVID, and potential changes of administration and the economy are affecting which deals he chooses and deal terms.
Simeon Iheagwam, Founder & Managing Partner of NOEMIS Ventures, that focuses on AI/ML, FinTech and Marketplaces, shared that while in March and April investors took a pause to try and determine the impact of COVID on consumers and businesses, VC investing picked up shortly after, when it was apparent the “new normal” might be here for a while. He feels investing remains strong and there are many attractive deals in the market.
More Creativity for Startups & VC’s to Discover Each Other & Network
Iynna Halilou, Global Programs Manager at ERA (Entrepreneurs Roundtable Accelerator), considered by many to be the top tech accelerator in New York, finds startups to incubate from all over the world, including Africa, Asia and South America. She shared that while the discussion is often about how startups find VC’s and investors, there’s really a balance because VC’s also need to find great startups. Since top startups look for strategic investors who can add value beyond just money, there’s considerable competition among VC’s to be selected by the hottest startups.
Jack and Shaun feel zoom calls are making the discovery process more efficient. Founders from Europe, Israel, Asia and other U.S. cities saved travel time and money not flying to Silicon Valley, still considered the hub of the global startup eco-system. With less time taken by travel, and virtual meetings being more time efficient, VC’s now have more time to discover startups. Since pitching is to some extent a numbers game, it’s now possible to make more contacts in a single day. Startups can now speak with as many as 10 VC’s a day.
Simeon shared that to compensate for the lack of face to face meetings, there are more reference checks, zoom calls and more players getting to know each other, including more team members, co-founders, and advisory board members.
Ieva Gaila, co-founder of startup Unfair Cap, that identifies high performing entrepreneurs through psychological assessment and introduces them to investors, works out of relatively new Station F in Paris, the largest startup incubator in the world. Facebook, Microsoft, BNP Paribas, L’Oréal and LVMH have incubators there. Prior to COVID, Station F had 600 networking events a year. The number is now reduced and most are now virtual. Since lockdown, occupancy is back up to approximately 80% of the pre-pandemic level, though people have their temperatures taken daily, masks must be worn at all times, and daily reports are issued of who has been infected and where on the campus.
Jack identified Lunchclub, a platform that through AI analyzes skill sets and interests and introduces founders to the types of people they want to meet. Initially in person, the platform has pivoted to arranging zoom meetings.
Shaun and Iynna both shared that warm introductions are going a long way to facilitate meetings and investments. As Iynna stated, founders and VC’s need to be creative in how they find each other, beyond typical founder demographics, plugging into online angel groups, entrepreneurship groups, university programs for entrepreneurs beyond obvious top schools, LinkedIn outreach, providing or attending mentoring sessions and virtual events and speaking with the organizers for connections and ideas, and working with start-up scouting firms. Though there’s a perception VC’s don’t look at their LinkedIn inboxes, Iynna felt that if the LinkedIn message is compelling and thoughtfully crafted vs. poorly written as many are, it can get VC’s attention. These factors, combined with less need to travel to be evaluated, have grown the pool of startups to discover and choose from demographically and geographically.
Succinct, Compelling Pitches Never More Important
Founder stories and pitches to VCs are critical. In a post-Covid world, Jack and Michael Nogen say pitches should be even more focused and more succinct online vs. more leisurely in-person meetings, especially since VC’s tend to be evaluating more startups each day, and because it’s harder get a feel for the founder’s personality through video. In the very first minute, it’s crucial they present the problem/business need and why customers and investors should care. Overall though, Michael feels it’s a good time to be a startup. He added it’s also never been a better time to be a female or minority founder. Half of Overton’s founders are diversity-led companies. Many U.S. venture capital firms are now joining the chorus of advocates lending their support to minority and diverse-founded startups since the start of this summer’s widespread protests against police brutality and systemic racism in the U.S
Total Captial Invested Approximating Pre-COVID, but In Fewer, Bigger Bets
source: eCap Partner/Newfund Capital
Ieva’s perspective from France is there’s currently almost as much money being invested as before COVID, but fewer, larger bets are being placed on higher probability, less risky startup ideas. Daniela observed the same pattern in Latin America. Ieva also feels that because it’s harder to assess teams remotely, greater importance is being placed on past track record and prior success, making it harder for first time founders to raise money.
Sectors Increasing Getting Funded
The areas attracting the most investment interest is not surprising:
– Health tech, telemedicine and mental wellness
– Climate change adaptation solutions
– Age tech for seniors cooped up at home
– Educational tech to help working parents have more freedom and provide more dynamic and engaging online experiences for kids
– Delivery solutions, both local food and merchandise, and cargo
– Ghost kitchens that simply deliver but have no physical footprint
– Home improvement, including garden maintenance, growing food, temperature control, decor and housewares, as people spend more time there
– Physical home office facilitators from furniture to lighting to computers
– Platforms that improve online work-from-home productivity between teams
– Supply chain efficiency and increased sustainability
– Robotics and AI that replace physical work done by humans side-by-side, including construction and R&D in labs
– Video games & e-sports
– 2-sided marketplaces
– Fin-Tech for banking, investment management, credit assessment, tax prep
– AI and retail to match consumer wants with inventory across independent retailers, for new and used/thrift items
Consumer goods and B2B physical products can also be good investments. While in-person shopping and B2B sales calls are much less frequent, explanations can be very effective online through humans, videos and chatbots. The offsets to reduced discoverability and impulse purchase in-store, are great websites, strong social media, influencers whose followers trust them to curate new products, and the increased time people are spending at home searching new products and reading online reviews.
For startups with great, differentiating, timely ideas, there are plenty of opportunities to get discovered and funded in the current environment due to the combination of:
– New technologies
– Rapidly changing circumstances, needs, and work & lifestyle behaviors
– Increased hunger for & receptivity to new products & solutions
– Easier, less costly and more time efficient ways of being found & evaluated
If you’re a VC looking to jump on disruptive opportunities, now is a great time, though you may have to adapt how you go about it. The search may be more labor intensive, but there are more options than ever and a more diverse pool of startups all over the world. It requires envisioning what an even more accelerated digital world might look like. These are unequivocally scary times, but for those who want to change the world for the better, it’s a very exciting time to make an impact.