Published on March 27, 2020 by:
Hi! I am the creator of peatch. I help tech entrepreneurs convince investors. I am a director @ Roland Berger Tech Ventures.
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We have spent the last two weeks talking at length with investors and entrepreneurs. Nobody knows for sure what is in store for 2020 and onwards. Nevertheless, below are insights we gathered from European investors as to how they see the next few months and what it means for entrepreneurs looking, currently or not, for fundings.
Current situation and state of mind
- VCs are busy supporting portfolio companies since most of them are hit badly by the crisis. They are supporting them by providing:
- Assistance implementing government packages
- Reviewing budgets to have a clear vision on their cash flow statements
- Coping with potential liquidity issues by assisting companies contract bank loans or providing bridges
- VCs are busy reporting to their LPs on the impact of the crisis on their portfolio companies
- Some VCs fear LPs might not honor their commitment in 2021 (and onward) if the economy does not recover fast
- Deals that were almost done before the start of the crisis are sometimes canceled, even on the day of the closing. Some deals are going forward with their closing when market conditions have not dramatically impacted the target company (or only momentarily so)
- Available bandwidth of investment teams for processing deal flow is at best limited, sometimes non-existent
What to expect for 2020
- VCs anticipate investment processes (diligence and decision-making) to take longer post-crisis
- VCs will be pickier than before the crisis; they will require even stronger convictions on opportunities before going forward
- Most of VCs communicate that they are currently or about to go back to meeting entrepreneurs for new investment opportunities
- VCs say they will start meetings and evaluations of new investment opportunities through video conferencing and calls. VCs also say that it will be difficult to invest in a company without meeting physically with the founding team
- VCs new investment capacities might be impacted by (i) existing portfolio companies that require recapitalization (ii) LPs not honoring their commitments in 2021
- VCs expect valuations to take a big hit during and after the crisis
What to expect for 2021 and onward
Predicting the future is hard (impossible). Will there be a before and after? Probably but it’s too early to get our head around the future of funding in the post-covid-2019 crisis. That being said, you can take a look at this article for a parallel on startup fundings in the aftermath of the 2007-2008 financial crisis:
At the time [of the 2007-2008 financial crisis], investors were telling companies to assess their runway and get profitable toward the end of the third and beginning of the fourth quarter in 2008. To put it bluntly, Sequoia warned startups to “Get Real or Go Home.”
Will history repeat itself ?