Venture capital hustle on hold as video calls replace coffees, Technology News, ETtech

Venture capital hustle on hold as video calls replace coffees
By Sarah Syed, Edward Robinson and Helene Fouquet

Cristina Vila was supposed to be in Silicon Valley on Wednesday morning for one of the most important meetings of her career. Instead, the entrepreneur was hunkered down in a vacation home in a remote mountain village in the Pyrenees filled with sacks of rice and dried fruits.

She was forced to pitch her two-year-old company, London-based startup Cledara, to a group of investors over a video conference. Vying with other finalists in the Female Founders Competition, Vila presented a demo of her company’s software management tools and fielded questions from a venture capital firm led by philanthropist Melinda Gates using Microsoft Teams. She expects to hear whether she won the $2 million in funding in early April.

“First and foremost, we are focused on the safety of our team in the pandemic,” Vila, 37, said via email. “But we have not experienced a slowdown in conversations with investors or put the brakes on our fundraising process.”

While governments race to suppress the spread of Covid-19 by restricting travel and discouraging meetups, startup founders are pressing ahead. Tom Hulme, the head of Europe for Google Ventures, said in a tweet on Thursday that he’d just closed its first “fully remote deal” and planned to do more.

But its going to take more than video calls to overcome the virus, and it’s impact on the global economy. Money’s been flooding into venture capital for the past few years — the firms took in more than $77 billion last year according to data from PitchBook — as investors chased yields that eluded them in less risky investments and looked for a way to take part in the tech boom.

Sequoia Capital — the world’s largest venture capital firm — sent a note to its portfolio companies this month calling the virus the “black swan of 2020.” Private financing may “soften” to levels seen in the wake of the recessions in 2001 and 2009 and companies should consider spending less on things like marketing and headcount, the firm said in a letter published on Medium.

“Despite what you’re hearing in the news, Covid is slowing/halting a ton of VC work. Email responses are slow to non-existent and deal flow has been quagmired,” Prashant Fonseka, a partner at San Francisco-based Tuesday Ventures said in an email. “We expect delays as long as 6-12 months in some deals as everyone figures out exactly what the toll of this virus is going to be and how long it will take markets to regain the substantial declines we’ve seen.”

Europe’s tech scene in particular, which has historically lagged behind the U.S. and Asia, has begun to thrive in the past few years, producing more unicorns and attracting record amounts of investment. A downturn now could be the first big test for many startups there.

“All those entrepreneurs have started their businesses after the 2008 crisis, more or less, and have always seen a growth cycle; they’ve never had a big problem,” said Jean-David Chamboredon, chief executive officer of French venture capital firm Isai. “Those who will be able to handle this crisis well, to show agility and the ability to navigate in the storm, will make it. This is the acid test for startups.”

Berlin-based Cherry Ventures told its founders in a note on March 10 to actively think of a plan B in the event the private fundraising environment will retract for an extended period of time. Travel restrictions for growth investors will naturally decrease the amount of deals they will engage in, Cherry said.

“Meetings are being canceled and while people are turning to video conferences, investors tend to want to meet entrepreneurs before they invest,” said Mark Tluszcz, CEO of Mangrove Capital Partners.

For now, funds are trying to keep on schedule. Tluszcz — an early investor in video calling firm Skype — said his firm will stick to its plan of raising 200 million euros ($215 million) for its sixth early stage fund in the fourth quarter.

Global investment firm Partech Partners will also continue with a plan to raise as much as 400 million euros for its next growth fund, according to a person familiar with the situation, asking not to be named as the fundraising is private. A spokeswoman for Partech declined to comment beyond saying the fundraising has started.

“The VC industry will keep investing through this, but of course, it’s tougher to get to know people” over video calls, which is “such an important part of what we do,” said Mike Volpi a partner at Index Ventures. “The world is running at half-speed for the next few months. That said, I am totally confident that in some number of months, perhaps a year, we will all be back to our lives of hustle.”

(With assistance from Natalia Drozdiak, Lizette Chapman and Mark Milian)

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