VCs warn coronavirus will impact fundraising for the next 2 quarters

As of this writing, COVID-19 has killed more than 3,400 people around the globe and the coronavirus has infected tens of thousands more. But its impact has gone much further, causing major disruptions in public markets and leading corporations to pull out of conferences and delay travel. Big tech companies are asking workers to stay home and investors are now urging startups to prepare accordingly.

Sequoia Capital sent a letter to its founders on Thursday warning that the coronavirus was a “black swan” event and startups should “brace themselves for turbulence” by considering if they have enough cash and preparing to face supply chain disruptions. The letter also warned they could have a harder time fundraising, similar to the market downturns of 2001 and 2009.

The coronavirus effect is rippling throughout the tech world. Seattle, which has seen a cluster of cases, seems almost a ghost town in some parts, according to entrepreneur and former Madrona Capital partner Shauna Causey. She told TechCrunch that many of the coffee shops and co-working spaces popular among VCs have gone empty in the last week and all of her fundraising meetings are conducted via Zoom.

And already there’s some chatter that funding might be drying up for early-stage startups, though Bloomberg Beta’s Roy Bahat tells TechCrunch that startups should always be fundraising as soon as they can to protect themselves from this type of calamity.

“The question a few investors are talking about, effectively: is coronavirus only the black swan or do all the swans now have coronavirus? Whether it’s the new normal, that’s the big question,” he said.

Still others say it’s just business as usual. “There have been a couple instances of cancelled travel from founders visiting the Bay Area and pushing back of board meetings where somebody would be on a plane,” Signia Venture Partners’ Sunny Dhillon told TechCrunch. “But I think fewer handshakes — and more hand sanitizer — and increased remote work at a couple of our portfolio companies are the only real differences we’ve seen.”

Spark Capital’s Nabeel Hyatt tweeted earlier in the week that only “shortsighted VCs will panic and stop doing deals, the good VCs will keep calm and carry on. But there are a decent number of shortsighted VCs, so plan accordingly.”

In a follow-up with TechCrunch, Hyatt clarified his position: “You fall for the company and its vision, that requires a pretty positive frame of mind. That’s a frame of mind that can definitely be [p]ut under stress in a situation like this.”

Homebrew’s Hunter Walk said all founders should already have a strategy in case their fundraising timetable is delayed for reasons beyond their control.

“Assuming the company is ‘on plan’ but for macro/sector reasons a fundraise is delayed, what would your plan be?” he asked. “Would you cut/manage discretionary spending, would you lay off people/cut salaries, do you know if your current investors are in a position to back you through a downturn?

Outside of that thought exercise — which I believe is always a good thing to do — if there are people who want to give you money sooner rather than later, then it’s just a question of whether it would eliminate existential risk to do so. Otherwise, I’m of the belief that great companies will always be able to raise in downturns or periods of risk — perhaps with some round size and terms impacted, but the round will get done. VCs also can be proactive in approaching their companies scheduled to fundraise soon and let them know if insiders are able to carry them through an extended period if necessary.”

So it seems there may be a bit of a slow down, with early-stage startups finding themselves in a rougher spot than this time last year. Good companies will probably get deals, according to several VCs — though those deals might be more likely to be made over video chat over the next couple of quarters.