March 2020 is unlike any other time in history not just for startups but for everyone in the world. We enter uncharted waters and here is what our team observed…
1. Investor Crawl-Back
Unfortunately there are high net-worth investors who lost a lot of money in the market when things started crashing and layoffs happened everywhere in the world. Just like entering the last Bear Market, some investors are faced with uncertain times for themselves. Consequently, startup funding has started to disappear at some firms and contracts are left unsigned.
2. Startup Valuations Get More Conservative
YC’s demo day was the first one done after the lockdown occurred in Silicon Valley, it was clear to see that valuations dropped since the last year’s cohort. This was favourable to investors who still had funds left to invest. The unfortunate thing was that not all accelerators were equipped to take things digital instantly, so some did not have real virtual demo days and only slide decks were sent to venture capitalists. As a result it is taking a bit longer to do due diligence and close deals.
3. Governments Hand Out Money
Even though there were hand outs of relief funds, not all startups qualify. In most cases, they were not meant for ‘tech startups’ but those who got it showed immense support for the rapid relief fund across social media. The tricky thing is it is difficult to establish how long these would last and who got it and who didn’t.
4. Venture Capital Firms Postpone Fundraising and Reinvest in Existing Portfolio
(As we work in early stage startup investment at VenturX, we can only state what we know about this stage.) Because it might take longer with unforeseeable circumstances when it comes to raising the next fund, the schedules have shifted to focus on their existing portfolio companies (those that they already invested in). In other words, some are halting their fundraising and reinvesting their remaining funds to their current startups in order to give them a bit of relief until the next fundraising round. This would ensure their runway of cash will not run out during the lockdown period.
5. How do Their Clients Cope?
Not only are the questions at pitches about the startup’s business model but also about their clients. Who are your clients? Have they been able to remain open during the lockdown? If they are not open and there are layoffs in their industries, how can they pay you? How will you be able to maintain revenue and growth during these times?
It all goes to say that we need to shift our mindset as as we enter this new normal.
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About VenturX
VenturX is a web platform that helps entrepreneurs through their journey from idea to launch and beyond. VenturX uses data-driven analytics to score and connect startups and investors at Seed and Series A financing.
