Remember when we thought COVID was just a horrible stage in our lives that would disappear after a month of masks and hand sanitizer? Oh, how sweet and naïve we were. As the pandemic marches on and many countries consider a second lockdown, businesses are having to look back on how they have managed these last 7 months and strategize for a corona-filled future.
One industry that’s experienced both the highs and the lows is Venture Capital. In an industry where networking is half the business, in-person meetings are sorely missed. Yet the pandemic has also ushered in a frenzied batch of founders who see the digital potential that has opened up in the new world.
I asked some of the partners and members of the investment team at F2 Venture Capital, a VC that specializes in big data, AI and connectivity, for their thoughts on investing in times of COVID.
Riding the Tidal Wave
While many industries caved in under the limitations of COVID, the deep tech world has fared well during the pandemic. Big Tech like Amazon, Facebook, Google and Apple have seen users soar since the pandemic began as socializing, business and shopping make major moves to the digital world.
While the importance of tech in our lives increases, opportunities for tech startups abound. As one of F2’s managing partners, Jonathan Saacks, explains,
“During COVID new behaviors and new activities across the board have created new data, making old models based on old data less relevant.”
This shift has sent the startup scene into a frenzy as young entrepreneurs try to come up with new products to provide for our new reality, a reality positioned firmly in the tech realm.
Barak Rabinowitz, another managing partner at F2, wholly agrees with this evaluation and compares it to a wave. After the initial lockdown when stock markets crashed and panic ensued, tech climbed back the fastest and the tide continues to rise.
“The tech wave has seen what we expected to happen over ten years happening in two, we were caught in this wave - but we have been preparing for it and look forward to riding it.”
From this angle, VCs are prospering during COVID as more entrepreneurs look for funding for their new pandemic-friendly products. Tal Zackon, a member of F2’s investment team, sums it up,
“The pandemic showed the power of technology companies, SaaS models and digitization - this is exactly what Venture Capital is looking for.”
Remote Due Diligence Takes a Hit
One of the primary activities for a VC is networking. While COVID may have increased the number of startups looking for funding, it also cut off the ability for face-to-face meetings between VCs and founders. This has been a huge challenge that most VCs are still trying to solve.
How can one invest millions in someone you have never met in person? How can you commit to a future with a partner you’ve never had the chance to feel out?
Meetings over Zoom calendared days in advance are fine for the dry aspect of the due diligence, but severely lacking when it comes to feeling out the startup team. As Maor Fridman, the technical wiz in F2's investment team explains,
“Yes it is easier to schedule a Zoom meeting and to fit in more meetings, but to bridge the emotional gaps in really getting to know a founder through digital means has still remained difficult.”
There have been some creative attempts to bridge this gap of founder/investor relationships. TechCrunch wrote about Matchbox.VC, a service connecting founders and investors over video games to network and source deals in a low-stress environment. Though valiant in its effort, it’s hardly a replacement for real-life networking and has major problems of its own, like the lack of female founders on this platform.
Assessing Portfolio Companies in a New Light
The pandemic has not only affected the due diligence process pre-investment, but it has also affected how VCs assist and evaluate their portfolio companies post-investment. Most VCs do not stop at investing monetarily, they also assist in their startup’s networking, mentoring, and other aspects of growth.
This is especially true for VCs who invest in early-stage startups. Noa Matz, the startup psychologist at F2 emphasizes how this crisis has given her a new way of looking at founders’ resilience, creativity, and emotional regulation. What better test is there than COVID to see how CEOs navigate hard and uncontrollable circumstances. Her experience during COVID has shown her that founders who were previously perceived as the strongest have lost their footing during the pandemic while founders who were perceived as being on the weaker scale have elegantly navigated this crisis.
Of course, no VC ever wants their portfolio company going through a crisis out of their control, especially one that could turn their business model upside-down. However, it can also be the greatest judge of who cracks under pressure and who is a sure thing come next funding round.
Enabling Portfolio Companies to Navigate the Storm
It goes without saying that founding or growing a startup in these times is no easy feat. In general, a startup founder goes through hundreds of tiny crises a day as they learn the ins and outs of growing their product and appealing to investors, new customers, and their team.
Adding a global pandemic to the list of factors outside a founders’ control leaves all startups in a fragile position. Whether it is having to pivot their product into new territory that is more relevant to the pandemic reality or to grow a cohesive team while onboarding remotely. A VC that wishes to help their companies along this road will have to put in the time, energy, and resources into their companies now more than ever.