When I wrote about how to run your startup in a downturn, the world was on the brink of recession. The economy contracted sharply — and the effects of the 2020 recession will persist.
If you are a founder, you can help. You can build companies that connect people, create employment and spark lasting change.
“Building is how we reboot the American dream,” declared Marc Andreessen, venture capitalist and co-founder of Andreessen Horowitz. In his rallying cry “It’s Time to Build” he writes: “We need to break the rapidly escalating price curves for housing, education and healthcare, to make sure that every American can realize the dream, and the only way to do that is to build.”
Yet building requires capital. How do you raise funding when the economy is on its knees? I spoke with six top venture capitalists to find out:
- Bill Trenchard, general partner, First Round Capital
- Dan Rose, chairman, Coatue Ventures
- Brianne Kimmel, founder, Work Life
- Sarah Guo, general partner, Greylock
- Merci Grace, partner, Lightspeed
- Charles Hudson, managing partner, Precursor Ventures
How has investment behavior changed during the pandemic?
- Deal velocity has gone up.
- The bar for investments is rising.
- VCs are nurturing existing investments and “proto-founders.”
The recession did not cause activity to stall. In fact, deal velocity has gone up.
“It’s almost like a superheated environment right now,” says Bill Trenchard, general partner at First Round. “The speed with which partnerships can quickly meet with a company that’s of interest is so much higher in the Zoom world. It’s changing our thinking around velocity in the market, which was already very high.”
“We’ve been as active as we were before,” agrees Dan Rose, chairman at Coatue Ventures. “Maybe even slightly more active because I think more good companies are raising as kind of an insurance policy. When it became clear that we weren’t going to be able to meet with founders in person anymore, we snapped to Zoom.”
Velocity may be rising, but investors now require more data to reach conviction.
“The pricing is still the same but we see risk going up,” says Bill Trenchard. “You need to be very rigorous on your investment theses and how you’re looking at companies. We’ve been looking for more grapple hooks and more data for things that we do invest in, so that we have more conviction when we do.”
“There’s been almost an immediate shift in terms of expectations from VCs,” says Brianne Kimmel, founder of early stage venture firm Work Life. “Companies have been forced to come in with more richness and customer development, a clear path to revenue, a lot more of a strategic approach around the core mechanics of the business and more specifically the business model.”
Sarah Guo, general partner at Greylock, also has high expectations for founders.