Startups Weekly - Investors also face a pandemic reckoning

Saturday, March 21, 2020 • By Eric Eldon

The investor reckoning

Billions of dollars have flowed into startup investing this decade, but the era appears to be closing with the coronavirus pandemic. Limited partners are saying no to younger venture firms who are still out raising, while cutting back on weaker existing firms in their portfolios, Connie Loizos reports on TechCrunch this week.

Other firms with direct ties to public markets are losing even more access to working capital. Connie thinks we will soon see term sheets getting pulled using force majure clauses (and in fact we’ve been hearing a few rumors). In another sign of pressure in the funding ecosystem, Danny Crichton hears that some investors are preparing for layoffs at their own firms.

With the pandemic’s impact just starting to be felt across global economies, everyone is bracing for hard times. So, if you’re a startup with fresh funding in the bank, Danny suggests that now is an especially good time to make a funding announcement that stands out.

Over on Extra Crunch, we’ve been going deeper on what startups and investors are facing and how they can adapt. “I expected 20-30% declines in valuation, but I would up that today to 50-60% in the earliest stages based on feedback I have heard,” Danny details in his latest update on pandemic fundraising trends.

Alex Wilhelm interviewed a growth-stage investor who thinks that Q4 may be the earliest that bigger startups will be able to do raises — and probably not from new investors right away. Everyone is trying to support existing portfolios too.

But what is really changing, when you look at the time scales of startups? Here’s an even-keeled view from long-time VC Mike Volpi, in an interview with Connie this week:

“[The business of venture is a very long-term one. For the average holding period we have within our portfolio companies is probably eight years. If you think about an investment that we made even, let’s say, last year, it’s going to look really different seven years from now. So these moments of fluctuation for us as VCs shouldn’t impact our thinking too much. They’re unpleasant. You have to be thoughtful about how to manage through them. But from an investment perspective, we shouldn’t really let it get too much in in the scope of how we think about it.”

Image Credits: urbancow / Getty Images

The great unicorn stall

Alex had been writing a popular series on companies on their way to IPO. Now the window on hundreds of unicorns appears to have closed for months if not longer. “Procore and Accolade, for instance, have filed publicly to debut but have yet to price and pull the trigger on their offering,” he writes on Extra Crunch this week. “Asana and DoorDash and Postmates have all filed privately to go public, but given the insane repricing of their comps on the public markets, no public filings appear to be in the offing.” He then breaks out Airbnb’s particular situation as a travel unicorn in a time of frozen borders.

Image Credits: Bryce Durbin / TechCrunch

Y Combinator's first remote-first demo day

While the entire event was online, we covered it as usual in a series of articles breaking out the entire class by categories:

Healthcare, Biotech, Fintech and Nonprofits

Hardware, Robots, AI and Developer Tools

Consumer Companies

B2B Companies

While the storied seed-stage venture firm has emphasized physical location to help its founders connect and learn, it is now considering making the next class fully remote.

You can find our casual take on the companies in this wrap-up call. We put together our list of 20 favorites, including reasons why, for Extra Crunch. Subscribers can also listen to Natasha Mascarenhas’ Equity interview with CEO Michael Seibel.

Y Combinator's first remote-first demo day image

Where top VCs are investing in remote events

Suddenly everybody needs to come up with new solutions to remote events. But what does that even look like? Arman Tabatabai surveyed five investors with bets in the space for Extra Crunch on what they think will be happening next. Respondents include:

Sarah Cannon, Index Ventures
Connie Chan, Andreessen Horowitz
Andrei Brasoveanu, Accel
Ryan Kuder, Techstars Anywhere
Paul Murphy, Northzone

Where top VCs are investing in remote events image

Image Credits: Colin Anderson Productions pty ltd / Getty Images

TechCrunch can help you stay connected

I swear the whole newsletter was not just building up to this moment, but we are also working out our plans for Disrupt and other conferences this year. For starters, we’ll have a discounted pass for the livestream and recorded videos of the main stage. More details here!

We’re also experimenting with lighter-weight ways for startup people to stay in the loop from anywhere through Extra Crunch. Danny kicked off a weekly conference call with investors and other specialists. Check out the recording from this week with Niko Bonatsos of General Catalyst; stay tuned next Tuesday for a live call with resident immigration law columnist Sophie Alcorn.

Across the week

TechCrunch

Wondering if venture capital is open for business? A new initiative has investors saying yes
Startups rethink what it means to be high-touch during a pandemic
Beware of ‘ZoomBombing:’ screensharing filth to video calls
PSA: Yes you can join a Zoom meeting in the browser

Extra Crunch

Dear Sophie: How do I get visas for my team to work from home?
Manage remote teams with a transparent culture
Founders who share insights can build industry trust at scale
Can Apple keep the AR industry alive?

#EquityPod

From Alex:

“This week’s episode was a testament to making do, as we’ve had to cancel some trips, juggle a few guests, and get up and running as a podcast that have guests dial in without losing our stride. So, this week Danny and Natasha and Alex were joined by Unshackled VC’s Manan Mehta. And it went pretty ok, aside from a hiccup or two, expect Equity to still feature guests as often as it makes sense, even if we’re currently locked out of our own studio….”