- VC experts talked about how COVID-19 is changing the venture capital industry on Wednesday in an online panel discussion hosted by PitchBook and the National Venture Capital Association.
- The economic fallout of the coronavirus pandemic has led firms to put less money into small, risky startups, and direct more towards established, stable companies.
- Such strategies run the risk of eventually drying up the pipeline of new ideas that VC firms at every stage of the funding process rely on.
- But it can be hard for firms to focus on smaller startups when so many resources are already wrapped up in larger portfolio companies.
- The loss of traditional meetings has led VCs to find new ways of building trust with founders, like socially distanced gatherings and increased background checks.
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Industry experts got frank about the current state of venture investing amidst COVID-19 during a panel discussion Wednesday hosted by PitchBook and the National Venture Capital Association.
Cameron Stanfill of PitchBook, Jennifer Friel Goldstein of Silicon Valley Bank, and Matthew Lee of Certent fielded questions and talked about how the economic fallout of the pandemic has reshaped traditional funding patterns. As uncertainty grips Silicon Valley, investors have increasingly put less money into small, risky startups and directed more towards larger companies with longer track records.
Goldstein acknowledged that might be bad for innovation long-term, but said she had faith in the ability of founders to find new sources of cash — possibly from other private investors.
"Innovators still start companies," Goldstein said, "so the sources of capital may start to look a little different."
Still, Goldstein acknowledged that the venture capital industry as a whole could suffer later if interest in earlier stage ventures dries up significantly now.
"I would expect that some of the later stage funds eventually are going to need to deal with their own pipeline and supply concerns," Goldstein said. "If everybody is only investing in late-stage, there are not going to be interesting mid-stage companies for them to invest in."
But the lure of a safe bet is understandable during economically uncertain times, Stanfill said.
"The late-stage companies in VCs' portfolios are likely where they have a lot of value, still wrapped up in companies like that," Stanfill said. "And so making sure those companies are healthy, are raising extra capital to extend their runway, make sure they're going to come through this crisis stronger than ever — that's one reason you're seeing a lot of deals come that way."
The panel also noted that the social isolation of COVID-19 has forced a change in the way venture capitalists build relationships, at a time when they can rarely rely on their usual face-to-face meetings to make gut calls on founders.
"VCs needed to start to innovate, to think about, 'how am I going to get over this historic need to meet someone in person to get a good sense of who they are?'" Goldstein said. "And we started to see the introduction of the socially distanced walk, the cocktail hour, a cooking class with these potential entrepreneurs."
That same need for trust has also driven a rise in background checks and reference checks, Goldstein said.
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