As the venture landscape adjusts to the COVID-19 pandemic and seismic shifts in public markets, early-stage VCs are reassessing which bets they’re making, along with questions they’re asking of founders who are exploring bleeding-edge technology.
Anorak’s Greg Castle
Anorak Ventures is a small seed-investment firm that bets on emerging tech like AR/VR, machine learning and robotics. I recently hopped on a Zoom call with founder Greg Castle to talk about what he’s seen recently in seed investing and how the sector is responding to the crisis. Castle was an early investor in Oculus; his other bets at Anorak include Against Gravity, 6D.ai and Anduril.
Our conversation has been edited for length and clarity.
TechCrunch: Has this pandemic affected the types of companies that you’re looking at?
Greg Castle: From my experience as an investor thus far, being reactive as an investor and looking at “hot” areas has a lot of pitfalls to be mindful of. I think a lot of the areas that excite me as an investor could benefit from what’s going on here, those areas including robotics, automation, immersive entertainment and immersive computing.
Just generally, do you feel like a recession is likely to negatively impact emerging tech more so than other areas?
Yes. I don’t think that there’s any way around it, I mean I could sugarcoat it and talk about how, in the long term, this is probably going to be helpful. But I think, in the short term, it’s going to hurt— there’s no question about it. Across the board, we have a flight to safety for capital. On the risk spectrum, emerging technology is over on one side, and that’s not the side people are flocking to.
Even inside emerging tech, are you going to look at some of the more proven areas going forward?
We’re all human and we’re all subject to the same kind of fears and psychology as everybody else, and when you see what’s happening with the world around you and you see the markets, you can’t help but be influenced a little bit.
That said, I think it’s part of my job as a VC to remain calm, look at the numbers, look at the data, and — you know — my beliefs haven’t changed for what the future is going to look like. It’s going to change the timeline a little bit and it affects the questions that I’m asking, but I think it’s part of my job to take that emotion out of it as much as I possibly can.
What do you foresee asking more about as you’re making these investment decisions?
Capital efficiency. How much they’re raising and how much runway it gives them. What’s the margin for error in that capital raise? What happens if the recession lasts for 12 months or 18 months? What’s your contingency plan? All of those questions.
Capital is not going to be as available as it has been for the last three years. How are you adjusting your plans?
This is probably the case for everybody, but for your companies that were just starting to think about raising again what advice are you giving for them now?
Don’t. I was just on the phone with one of my founders and he was like, “You know, we were supposed to close three days ago and the guys have just kind of gone silent on me.”
My advice to him was proactively reach out, say that you understand that things are tough right now, that you are heads-down ensuring that you’re in a good position coming out of this and that you’ll reach back out in three weeks. My advice is don’t compete for investor mind space for the next few weeks. Let them be with their families, their loved ones, make sure that their houses in order, and then come back around when things are a little bit more certain. Even if the new certainty is uncertainty, still come back when this stuff isn’t as fresh and people are a little bit more set.
Is there any concern on your part that you’re gonna kind of have to deploy more follow-on capital to some of the startups that you bet early on, if you’re unsure they’re going to be able to convince new investors to make an emerging tech bet right now?
Yeah. I think it’s something I’m definitely going to have to be mindful of it as I’m coming to the end of the lifecycle of my fund. The amount I have reserved long-term for follow-on may need to be shuffled around. Having said that, I have had a few big deals that have taken place over this past week. So deals are still getting done.