13 Boston-focused VCs share the advice they're giving portfolio companies

TechCrunch is focusing a bit more on the Boston-area startup and venture capital ecosystem lately, which has gone pretty well so far.

In fact, we had originally intended on releasing this regional investor survey as a single piece, but since so many VCs took part, we’re breaking it into two. The first part deals with the world we live in today, and the remainder will detail what Boston-area investors think about the future.

We broke our questions into two parts to better track investor sentiment. But, we were also curious what was going to come when things got back closer to normal. So, this first entry in our Boston investor survey covers our questions concerning what’s going on now. In a follow-up survey, we’ll look at what’s ahead.

Here’s who took part:

What follows is a quick digest of what stood out from the collected answers, though there’s a lot more that we didn’t get to.

Boston VC in the COVID-19 era

Parsing through thousands of words and notes from our participating VCs, a few things stood out.

Boston startups aren’t having as bad a time — yet, at least — as area investors expected

Fewer companies than they anticipated are laying off staff for example. From our perspective, the number of Boston investors who noted that their portfolio companies were executing layoffs or furloughs (we asked for each to be precise) was very low; far more Boston-area startups are hiring than even freezing headcount. Layoffs appear somewhat rare, but as we all know cost cutting can take many forms for startups. Especially startups on the seed and early-stage side, which makes up the majority of these firm’s portfolio companies.

According to Glasswing’s Rudina Seseri, startup duress has come in “significantly under what [her firm was] expecting at the beginning of COVID-19.”

This may be due to a strong first quarter helping companies in the city and its surrounding area make it another few quarters. We might not know the full bill of COVID-19 and its related disruptions until next year.

More investors than we expected noted that their Boston portfolio companies aren’t raising this year

So what we’re gleaning from that fact is that any decline in Q2 and Q3 VC data is not because companies can’t raise, but because they don’t need to. Comments echoed a theme we wrote about in April: Boston broke records in Q1 in terms of dollars raised, but saw a dip in the number of checks cut.

Pillar VC’s Jamie Goldstein said that “about 15% of our companies are planning to raise capital this year,” which felt about average. Underscore VC’s Lily Lyman simply noted that, “Yes,” her Boston-area portfolio companies would hunt for new capital this year. Bill Geary of Flare Capital is on the other side of that coin, saying that “each of [his firm’s] Boston-based investments has successfully recently raised capital and will not be raising additional funds until 2021.”

It’s hard not to wonder if what happened to Boston unicorns Toast and EzCater was the exception and not the rule

You see, Boston’s startup scene skews relatively early stage, so smaller companies don’t have high-profile cuts because, to be frank, there isn’t much staff to cut in the first place. It puts Boston in a unique setting to focus in on its early stage market, and investors all agreed that this is an important moment for the ecosystem.

The March-era stress tests are now months in the rearview mirror, and every startup has shaken up their spend and growth plans. Perhaps we have met the new normal, and it’s time to let the runway do the talking.

With that, let’s get into full questions and answers.

Rudina Seseri, Glasswing Ventures

What is the top-line advice you’re giving your portfolio companies right now?

This is a pivotal time, be efficient and drive execution. Cut costs where possible but at the same time don’t be afraid to spend for growth acceleration.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

About 60%.

What percentage of your Boston-based portfolio companies have frozen new hires?

About 20%.

What percentage of your Boston-based portfolio companies have furloughed staff?

None.

What percentage of your Boston-based portfolio companies have cut staff?

One company that represents about 4% of the portfolio.

Are your Boston-based portfolio companies looking to raise new capital this year?

Most have raised recently, and consequently are not looking to raise at this time.

If not, are they often delaying due to COVID-19?

No, because of their recent raises, their fundraising considerations will take place in 2021.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

It has been significantly under what we were expecting at the beginning of COVID-19.

How has your investment appetite changed in terms of pace and location, if at all?

We have been very active and closed deals in this environment. Our expectation is that our investment appetite will remain the same going forward.

Are you making investments in Q2 into net-new founders and companies?

Yes, as a matter-of-fact we just closed a yet-to-be announced investment this month.

Are there particular sectors of startups in Boston that you expect to do well, aside from SaaS businesses that are benefiting from secular trends? Are there any sectors you have become newly bearish on?

Yes, those that are in our core focus areas — solutions that bring down the cost of cloud and data, platforms and tools leveraging AI, those that facilitate cost reduction, and intelligent solutions in cybersecurity that protect the enterprise.

How does the uncertainty of schools reopening impact the startup ecosystem?

This will further drive and institutionalize distributed teams and remote working as a go-forward mode of operating.

Lily Lyman, Underscore VC

What is the top-line advice you’re giving your portfolio companies right now?

Try to focus on the immediate things that you can control while tuning out the things you can’t. Your leadership is what employees and customers will remember once your business returns to “normal.” So face your unique challenges head-on and embrace change. Don’t be reactive. Now more than ever is the time to be treating all of your customers like prospects — listening to them and learning from them regularly. We’ve also told our portfolio companies to anticipate a longer time to raise money and lower valuations. Each company has been advised to develop multiple replans — a survival plan, a normal plan and an upswing plan so they’re not caught flatfooted.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

40%.

What percentage of your Boston-based portfolio companies have frozen new hires?

30%.

What percentage of your Boston-based portfolio companies have cut staff?

30%.

Are your Boston-based portfolio companies looking to raise new capital this year?

Yes.

If not, are they often delaying due to COVID-19?

All have been advised to try to extend their runway into Q1/Q2 2021; to lean into warm relationships with investors, and to proactively listen for what investors will be looking for to get to conviction.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

It has largely matched our expectations, and, of course, depends on the industry (some have exceeded expectations). We have seen a surge in demand for players in the cloud infrastructure space, such as CloudZero, or for remote collaboration software.

Other companies have been able to remain focused and customer-centric, and as a result have continued to retain, expand and even bring in new business.

How has your investment appetite changed in terms of pace and location, if at all?

We remain very actively focused on new investment opportunities. As a firm, we’ve closed over three investments since going remote on March 13th. We also remain incredibly bullish on Boston, and because of Boston’s unique strength in the areas of AI/ML, commerce, cybersecurity and robotics, I’d argue that as an ecosystem we’re better equipped to not only survive but also thrive amidst the pandemic.

On pace, we are still finding that processes can move quickly, though require additional measures (e.g., additional references, remote “whiteboarding” sessions or planned “remote social time”) to get to know founders we haven’t met in person.

Are you making investments in Q2 into net-new founders and companies?

Yes.

We remain bullish on sectors that are experiencing this catalyst in digital transformation, many of which are areas we see as already strong in Boston and in which we’ve been investing, including e-commerce, cloud infrastructure, remote work and collaboration, fintech/insurtech and cybersecurity. We are also actively exploring digital learning, as we believe these behavior changes are here to stay and winners will emerge. Boston also has a strong cohort of companies and talent around telemedicine and digital health.

Travel and restaurants will likely be difficult investment areas for a while.

How does the uncertainty of schools reopening impact the startup ecosystem?

The economic impact of school closures is well studied, with one report indicating that a nationwide 12-week closure could reduce national GDP by a full percentage point (and that’s without coronavirus). Truthfully, I think that estimate is low. The startup ecosystem, despite perhaps having greater flexibility around remote-work, is not immune to the decrease in productivity created by school closures. That said, challenging times give rise to creativity. I expect we’ll see incredible innovations emerge from Boston entrepreneurs in the coming months.

Jamie Goldstein, Pillar VC

What is the top-line advice you’re giving your portfolio companies right now?

Focus on the milestones you need to raise your next round of funding, and make sure you have sufficient runway to get there. The bar may be higher to hit the milestones you need to achieve, so you might consider raising more money (extension of last round), layoffs or across-the-board pay cuts to give yourself more time. Take care of yourself and your team.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

25%.

What percentage of your Boston-based portfolio companies have frozen new hires?

75%.

What percentage of your Boston-based portfolio companies have furloughed staff?

0%.

What percentage of your Boston-based portfolio companies have cut staff?

25%.

Are your Boston-based portfolio companies looking to raise new capital this year?

Yes, about 15% of our companies are planning to raise capital this year.

If not, are they often delaying due to COVID-19?

It’s certainly not an ideal time to be fundraising. Working with an investor is a long-term partnership and the chances of closing an investment are much better when you can meet people in person. If this is an option, we’re encouraging our companies to wait –– they are also more likely to have stronger results to point to a few months from now.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

People are generally handling the circumstances well. We’re impressed with how agile and resilient founders have been over the last several months. Everyone is focused on the health of their companies and their teams. People are dealing with a lot of change and pressure, but they’ve been swift to make hard decisions that will ensure the future health of their companies.

How has your investment appetite changed in terms of pace and location, if at all?

We remain strongly committed to backing early-stage founders in Boston. We feel like our pace could actually increase in this period.

Are you making investments in Q2 into net-new founders and companies?

We closed several investments, but all are people we met pre-COVID. We haven’t closed a new investment yet with a founder who we met net-new during the crisis.

Are there particular sectors of startups in Boston that you expect to do well, aside from SaaS businesses that are benefiting from secular trends?

Robots, healthcare, bio, 3D printing, recruiting.

Are there any sectors you have become newly bearish on?

Travel, entertainment.

How does the uncertainty of schools reopening impact the startup ecosystem?

Much of our work spins out of universities. If campuses remain closed, it remains more difficult to build relationships that lead to future spinout companies. With the hope of connecting with and supporting this community, we recently teamed up with Petri to launch Breakout, a free virtual program for future founders.

The Victress Capital team (Lori Cashman, Suzanne Norris, Kate Castle, Madeline Keulen, Molly Sellers)

What is the top-line advice you’re giving your portfolio companies right now?

While our advice in March to portfolio companies was on the need to adjust and reset plans to provide a longer runway, our top-line advice right now is focused on leadership. Leadership at a business level and leadership with their teams. With so many unknowns on the business level, it is critical that they build and embrace iterative processes that enable them to constantly assess the situation, adjust their plans, quickly execute, and continually reassess again. On a people level, empathy, flexibility and transparency are key things we encourage our portfolio leadership to keep top of mind with their teams.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

March was a tough month for any company out there. Our (and many other) portfolio companies did the hard work of stress testing their forecasts and analyzing downside cases with zero-to-negative growth scenarios, making reductions across fixed and variable cost buckets, exploring alternative sources of capital to provide a longer runway and transitioning teams to be fully remote.

While it’s still very early to know where the rest of the year will take us all, we have started to see positive signs, and, in many cases, our portfolio companies have overshot the reset expectations they put forth in March. Our model has always focused on investing in capital-efficient businesses with strong unit economics, which plays well in the current environment. Sales across many categories within consumer have risen significantly over the past month including health and wellness, supplements, beauty and skincare, food and beverage, and nonluxury fashion and apparel, which has also benefited several of the companies in our portfolio.

How has your investment appetite changed in terms of pace and location, if at all?

Not at all. We continue to meet and evaluate prospective investments, albeit via Zoom meetings during these times. We are fortunate in that we are not burdened by an extensive legacy portfolio and therefore we have the capacity to continue to source opportunities and deploy capital into new and follow-on opportunities in companies in consumer markets that we believe are well-positioned in both COVID and post-COVID environments.

Are you making investments in Q2 into net-new founders and companies?

Yes.

Our focus has always been on investing in early-stage consumer companies with gender-diverse teams. Our sweet spot is with companies in high-growth consumer segments, specifically consumer brands, digital marketplaces and tech-enabled consumer services that have the ability to scale at an accelerated pace.

While the recent weeks have created tremendous economic uncertainty around the world, as investors, we believe that great companies are founded and built in the most challenging of times. In response to this downturn, we anticipate consumer behavior will shift more toward digital business models as the penetration of online shopping continues to accelerate and we expect that a new generation of innovative companies and technologies around this sector will emerge.

How does the uncertainty of schools reopening impact the startup ecosystem?

This is concerning, not only for the startup ecosystem, but also for all of the parents and children out there who will be impacted both in the short and long term. We have been impressed by the resiliency they have shown over the past few months and by how well the startup ecosystem has embraced making changes to provide flexibility to their teams as they manage both work and home schooling.

The silver lining to working from home has been that we have had an opportunity to connect with a lot of colleagues at other venture firms where typically our travel schedules prevent us from easily lining up calendars. There is also a level of intimacy in “meeting” people inside their homes that builds a unique connection.

Rob Go, NextView

What is the top-line advice you’re giving your portfolio companies right now?

Try to avoid raising money in the next year and especially avoid Q4/Q1 when there is likely to be a chance that there is a second spike of coronavirus shutdowns.
This is a moment to get in front of people that otherwise won’t be picking up the phone. Be bold about hiring, partnerships and getting in front of important people that may be influencers in your market.
Take care of yourself and your families. This pandemic is a deeply human problem. Be mindful of your own mental and physical health and that of your team and families.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

70%.

What percentage of your Boston-based portfolio companies have frozen new hires?

30%.

What percentage of your Boston-based portfolio companies have furloughed staff?

0%.

What percentage of your Boston-based portfolio companies have cut staff?

0%.

Are your Boston-based portfolio companies looking to raise new capital this year? If not, are they often delaying due to COVID-19?

Most of our companies are delaying if it is possible, but this obviously isn’t possible for all companies. We’ve seen that some of our portfolio companies are experiencing significant tailwinds because of COVID-19, and they are using that fact, raising opportunistically.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

Thus far, the impact has been slightly less than expected, but we think that the negative effects on the overall market will be realized over several quarters.

How has your investment appetite changed in terms of pace and location, if at all?

It has actually increased our appetite for earlier stage companies with a long time horizon. That is why we launched an accelerator program to broaden our aperture for investment. With the likelihood that more companies will be distributed, we are expecting a slightly broader set of geographies represented by our portfolio.

Are you making investments in Q2 into net-new founders and companies?

Yes. Our new investment pace for Q2 is approximately the same as it has been in prior quarters.

We are bullish on telemedicine, digital health and digital therapeutics. We are newly bearish on companies focused on the commercial real estate sector.

How does the uncertainty of schools reopening impact the startup ecosystem?

As parents to children ourselves, we can only imagine that the uncertainty of schools reopening in the fall will have a massive impact on worker productivity and workforce participation rates.

Bill Geary, Flare Capital

What is the top-line advice you’re giving your portfolio companies right now?

We focus on healthtech and healthcare services venture capital investing and the crisis is not impacting each of our investments equally, there are some positives alongside the negatives. Each of our portfolio companies is replanning for 2020 extending through 2021 with the addition of base, downside and low-case scenarios. Generally, expense reduction actions have been implemented alongside simultaneous opportunities for increased revenues, and this is a time for our companies to help their customers with their crisis-induced needs, with a focus on increasing their market share and thought leadership and making selected important team additions while right-sizing expenses as needed to successfully get through this difficult period.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

Two-thirds of our Boston-based portfolio companies are still hiring while only one-third have reduced or frozen staff.

Are your Boston-based portfolio companies looking to raise new capital this year? If not, are they often delaying due to COVID-19?

Each of our Boston-based investments has successfully recently raised capital and will not be raising additional funds until 2021.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

The issues our Boston-based portfolio companies are dealing with have matched our expectations from March.

How has your investment appetite changed in terms of pace and location, if at all?

We are national early-stage healthtech and healthcare services investors and our investment appetite, pace and location continues unchanged, and we’re actively seeking new investment opportunities.

Are you making investments in Q2 into net-new founders and companies?

Yes, we’re actively seeking new investment opportunities and currently expect to make a net-new investment this Q2 as well.

We are entirely focused on healthtech and healthcare services and remain enthusiastic about the accelerated impact of innovation on healthcare, lowering costs, improving outcomes and meeting heightened consumer demand.

How does the uncertainty of schools reopening impact the startup ecosystem?

School reopening uncertainty poses a number of complexities for all involved, but we don’t see the startup ecosystem being negatively impacted and, if anything, it may accelerate the availability of entrepreneurial talent.

Michael Greeley, Flare Capital

What is the top-line advice you’re giving your portfolio companies right now?

As we are only investing in healthcare technology companies, it is a “Tale of Two Cities” moment in our sector. It is absolutely critical that management teams extend existing cash runways as long as possible (delayed hiring, cost reductions, salary reductions if necessary) given how challenging the private capital markets are. But it is also a time to assess and rapidly evolve business models in response to urgent market needs. More so than ever before, cash is king if you want to take advantage of new market opportunities.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

~66%.

What percentage of your Boston-based portfolio companies have frozen new hires?

~33%.

What percentage of your Boston-based portfolio companies have furloughed staff?

~33%.

What percentage of your Boston-based portfolio companies have cut staff?

~33%.

Are your Boston-based portfolio companies looking to raise new capital this year?

Yes, a few will raise later this year.

If not, are they often delaying due to COVID-19?

No — if you need to raise capital, you need to raise capital. It is hard to materially delay when a startup runs out of cash by more than 2-4 months without taking drastic cost-reduction steps.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

We had expected worse, which underscores how resilient and important the healthcare technology sector is.

How has your investment appetite changed in terms of pace and location, if at all?

Appetite is largely unchanged as we recently raised a new fund. Still sorting out how to make new commitments virtually but am confident we will sort it. I could see VCs becoming much more regional in the near/medium term as those may be the only people one could meet (in a parking lot, on a field!) or more later stage, backing companies that they have been tracking and/or investing with existing investors that they have partnered with before.

Are you making investments in Q2 into net-new founders and companies?

We have not yet but we are only halfway through the quarter. There are a few deep in diligence.

Obviously, the healthcare technology sector is even more important now with an emphasis on virtual and novel care delivery models, healthcare infrastructure security, and more robust analytics. I would think opportunities dependent on robust consumer spending will be quite challenged over the next 1-2 years.

How does the uncertainty of schools reopening impact the startup ecosystem?

I would not expect a significant impact unless you were an edtech investor. Unfortunately with unemployment racing toward 20+%, there will be plenty of experienced talent available in the market.

Jeff Bussgang, Flybridge Ventures

What is the top-line advice you’re giving your portfolio companies right now?

In every obstacle lies opportunity. Reframe your mental state to look for where the opportunities lie in the new normal and be creative about leveraging your team and capabilities to take advantage of them.

What percentage of your Boston-based portfolio companies have cut staff?

Not precise numbers, but I’d say ~50% froze, 25% cut, 25% hiring/growing.

Are your Boston-based portfolio companies looking to raise new capital this year? If not, are they often delaying due to COVID-19?

Our companies typically raise capital every 12-18 months so, yes, many were looking to raise in 2020. The good news is that many raised very strong rounds in the last 12 months, taking advantage of the strong fundraising environment.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

Roughly matched in terms of performance. The financing market has been better than I had expected.

How has your investment appetite changed in terms of pace and location, if at all?

We are still making new investments (closed three new ones in the last 60 days during the quarantine) but our bias is toward people we know. In other words, it’s hard to commit to a new startup with a founder you’ve never met over Zoom alone. Not impossible, but hard.

How does the uncertainty of schools reopening impact the startup ecosystem?

Not a huge impact.

Neeraj Agrawal, Battery Ventures

What is the top-line advice you’re giving your portfolio companies right now?

In my view, companies should strive to find a balance between playing offense and defense in their businesses. You want to budget and operate somewhat conservatively — given expected revenue drops — so that you have enough cash on hand when the crisis lifts. At the same time, you want to invest in growth, bolster your market position, and post metrics that will allow you to raise money again when the environment improves. Be extremely selective in how you’re using your cash and prudent on all fronts, but don’t lose sight of the big picture.

What percentage of your Boston-based portfolio companies are still hiring, not including those merely backfilling?

~75%.

What percentage of your Boston-based portfolio companies have frozen new hires?

~25%.

What percentage of your Boston-based portfolio companies have furloughed staff?

None.

What percentage of your Boston-based portfolio companies have cut staff?

None.

Are your Boston-based portfolio companies looking to raise new capital this year?

Most or all are fully funded through this year.

If not, are they often delaying due to COVID-19?

No.

Has duress amidst your Boston-based portfolio companies undershot, matched or overshot your expectations from March?

That’s hard to say, as the companies’ performance has been very sector- and market-specific. Cloud software, where I do most of my investing, has been fairly resilient during this time, though obviously still affected by the downturn. Overall, the shift by enterprises to cloud technology, and the broader march to digital transformation, is proceeding. Cloud technologies that help people work from home and buy things easily online is clearly accelerating. But different companies are experiencing different things, depending on their customer base, their cost structure, their level of maturity and a host of other factors.

How has your investment appetite changed in terms of pace and location, if at all?

The pandemic hasn’t really changed our appetite for companies in certain locations — though obviously it would be easier for me to do a deal in Boston right now, compared to New York or San Francisco, because it’s right in my backyard and I wouldn’t have to fly there. As far as pace of investing, my firm raised a large new fund in February, so we’re still actively exploring new opportunities. We’ve wired money to new companies and submitted term sheets to new companies since COVID-19 hit. That said, clearly the inability to meet founders in person, at least right now, is changing our workflow and forcing us to do our jobs differently.

Are you making investments in Q2 into net-new founders and companies?

Yes.

Boston is obviously a hub for biotech, and while we don’t do biotech investing per se, we’re very interested in healthcare software and other forms of healthcare IT. We’ve invested in a host of sector-specific, healthcare software companies in the last 15 years, including those serving physical therapists, dentists, home-healthcare companies and even blood laboratories. Healthcare can be a challenging sector for tech startups, given the industry’s complexity and regulatory aspects. But right now, obviously, healthcare is top-of-mind for everyone, and we’re seeing technology buyers in the industry come to the table excited about the potential for new, digital solutions to impact their businesses. These buyers range from hospitals to individual healthcare practices to big pharmaceutical companies to insurers. There’s a lot of potential here.

We’re more bearish on companies across industries with business models that stress “growth at all costs” and require spending large sums of money to win customers and market share. These companies are struggling right now as many buyers have slowed down, cash becomes more important, and the capital markets have become less accommodating.

Lastly, it’s worth highlighting that in past recessions, buyers significantly scrutinize the expected ROI for all investments, including software/IT. Companies with “squishy” value propositions usually face significant pressure in this environment, mostly driven by empowered finance and procurement departments. As a result, companies need to do a better job articulating the business benefits of their software offerings, and ideally can point to significant, tangible cost savings. Value-based selling becomes absolutely critical.

How does the uncertainty of schools reopening impact the startup ecosystem?

The school issue is affecting startups the way it’s affecting all companies — it’s a big uncertainty. Parents who work at big or small companies are having to deal with childcare, homework, meal prep and other kid-related issues even as they’re under more pressure than ever at work AND having to work from home. I’m experiencing this in my own family. It’s definitely not easy and I’m sure is creating some drag on productivity — and more mental stress! — for everyone.