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Today — April 4th 2020Your RSS feeds

New guidance on SBA loans means most startups are still excluded from $349 billion stimulus

By Jonathan Shieber

Under new guidance issued by the Small Business Administration it seems non-profits and faith-based groups can apply for the Paycheck Protection Program loans designed to keep small business afloat during the COVID-19 epidemic, but most venture-backed companies are still not covered.

Late Friday night, the Treasury Department updated its rules regarding the “affiliation” of private entities to include religious organizations but keep in place the same rules that would deny most startups from receiving loans.

(b) If you are a faith-based organization, *no affiliation rules apply to you,* because the SBA just said so. Out of nowhere. At like 10pm on a Friday night.

It doesn't matter if you have a zillion employees; as long as any 1 entity has <500 employees, it can get a #PPPloan.
4/ pic.twitter.com/V0x3Vx6G7x

— Doug Rand (@doug_rand) April 4, 2020

The NVCA and other organizations had pushed Treasury Secretary Steve Mnuchin to clarify the rules regarding startups and their potential eligibility for loans last week. And House Republican leader Kevin McCarthy even told Axios that startups would be covered under the revised regulations.

Apparently that didn’t happen, as Mark Suster, the managing partner of Los Angeles-based Upfront Ventures, noted in a tweet.

2/ There are rumors that the PPP Loan program may still fix the Affiliate Rule next week. Until fixed, it's nearly impossible for most VC-backed startups to apply because it would require huge legal lift to amend all of the charters of these companies to change control provisions

— Mark Suster (@msuster) April 4, 2020

At its essence, the issue for startups seems to be centered on the board rights that venture investors have when they take an equity stake in a company. For startups with investors on the board of directors, the decision-making powers that those investors hold means the startup is affiliated with other companies that the partner’s venture firm has invested in — which could mean that they’re considered an entity with more than 500 employees.

“[If] there’s a startup that’s going gangbusters right now, they shouldn’t apply for a PPP loan,” wrote Doug Rand, the co-founder of Seattle-based startup Boundless Immigration, and a former Assistant Director for Entrepreneurship in the Office of Science and Technology Policy during the Obama administration, in a direct message. “But most startups are getting killed because, you know, the economy is mostly dead.”

The $2 trillion CARES Act passed by Congress and signed by President Trump was designed to help companies that are adversely affected by the economic fallout resulting from the COVID-19 outbreak in the US and their employees — whether those businesses are directly affected because their employees can’t leave home to do their jobs or indirectly, because demand for goods and services has flatlined.

While some tech startups have seen demand for their products actually rise during these quarantined days, many companies have watched as their businesses have gone from one to zero.

The sense frustration among investors across the country is palpable. As the Birmingham-based investor, Matt Hottle, wrote, “After 4 days of trying to help 7 small businesses navigate the SBA PPP program, the program went to shit on launch. I’m contemplating how many small businesses, counting on this money, are probably locked out. I feel like I/ we failed them.”

After 4 days of trying to help 7 small businesses navigate the @SBAgov PPP program, the program went to shit on launch. I’m contemplating how many small businesses, counting on this money, are probably locked out. I feel like I/ we failed them.

— Matt Hottle (@MattRedhawk) April 4, 2020

And although the rules around whether or not many startups are eligible remain unclear, it’s probably wise for companies to file an application, because, as the program is currently structured, the $349 billion in loans are going to be issued on a first-come, first-served basis, as Suster flagged in his tweets on the subject.

General Catalyst is advising its companies that are also backed by SBIC investors to apply for the loans, because that trumps any other rules regarding affiliation, according to an interview with Holly Maloney Burbeck, a managing director at the firm.

And there’s already concerns that the money could run out. In a tweet, the President announced that he would request more money from Congress “if the allocated money runs out.”

I will immediately ask Congress for more money to support small businesses under the #PPPloan if the allocated money runs out. So far, way ahead of schedule. @BankofAmerica & community banks are rocking! @SBAgov @USTreasury

— Donald J. Trump (@realDonaldTrump) April 4, 2020

“Congress saw fit to allow Darden to get a forgivable small business loan—actually a taxpayer-funded grant—for like every Olive Garden in America. But Congress somehow neglected to provide comparable rescue measures for actual small businesses that have committed the sin of convincing investors that they have the potential to employ a huge number of people if they can only survive,” Rand wrote in a direct message. “The Trump administration has full authority to ride to the rescue, and they did… but only for large religious organizations.”

Yesterday — April 3rd 2020Your RSS feeds

Insight closes $9.5B fund to help support portfolio companies through the pandemic

By Ingrid Lunden

We’re now several weeks into what has become a very big dip for the global economy due to the coronavirus pandemic, but amidst that, we are seeing are some notable pockets of investment activity emerging that will help shape how the future startup landscape will look. Today, one of the biggest venture capital firms in the world announced the closing of a huge fund, money that it will use in large part to help its portfolio businesses weather the storm.

Insight, the firm that has backed the likes of Twitter and Shopify and invests across a range of consumer and enterprise startups (400 in all), today announced that it has closed a fund of $9.5 billion, money it will be using to support startups and “scale-ups” (larger and older startups that are still private) in the coming months. Investments will typically be between $10 million and $350 million, “although larger transactions are also possible,” the company said.

“First and foremost, we want to acknowledge the current climate and the hardships being felt across the globe,” said Jeff Horing, Insight Partners’ founder and MD, in a statement. “We are thankful and humbled by the support of our investors which enables us to continue to deliver world class resources during turbulent economic times. Fund XI gives us continued flexibility to provide the combination of capital and operating support that suits the different needs of every software company in a dynamic world.”

This fund, numbered XI, brought in a number of returning backers alongside new investors, and it is record-sized for the company. It also appears to have been oversubscribed, since back in November when it was launched the fund was estimated to be worth just over $7 billion. All the more impressive, too, is that it closed just this week, at a time when many startups are starting to feel the pinch of a business downturn, and are either laying off staff or freezing hiring to curtail costs, leading investors to get a little shaky.

Insight’s fund is a signal of two themes. One is that there are, even now, some silver linings, where particular business areas are seeing huge surges of activity (videoconferencing to connect all the people now sheltering in place at home; those helping keep food delivery operational; entertainment streaming companies; and those focusing on medical research or telehealth are just five categories seeing a positive impact; there are more). This fund will help Insight invest in these opportunities to help these businesses grow to meet the demand.

The second theme is a little less upbeat but still important, and that is the fact that there are a number of very promising ideas out there that have already been backed by VC money, which will not survive the current economic crunch without some support. VC money will likely be used in a very targeted way to help in those situations, alongside more fiscal belt-tightening and other funding means (for example, loans that the U.S. government will be issuing via the CARES act to help small businesses get through lean times brought by the coronavirus pandemic).

Indeed, a spokesperson said Insight will be “hyper-focused on supporting its portfolio companies” with ongoing and near-future funding.

We’ve reached out to see if we can get more detail on how new investments, versus reinvesting in existing portfolio companies, will figure in future funding, and we’re also asking if there are specific categories that are of particular interest at the moment. We’ll update this post as we learn more.

“Since our first investment 25 years ago, the global software ecosystem has matured even as it continues to innovate, spurring Insight’s own innovation in sourcing, and our data-driven partnership approach to working with ScaleUp companies as a minority or buyout investor,” said Managing Director Deven Parekh. “We are grateful that through economic cycles and unprecedented circumstances, Insight Partners remains a sought-after institutional platform for supporting next generation software companies.”

In a separate letter to investors, Horing and Parekh also noted the complicated climate of the moment — which includes not just the challenge of VCs raising funds right now amid a climate of LPs also feeling the crunch, but also the fact that not all startups will be able to rely on all their investors to support them through these challenging times. Tough decisions will need to be made at all levels.

Germany’s Xpension pension platform raises €25M in a Series C growth round

By Mike Butcher

The German pension and insurance industry was a laggard in the world of online a few years ago, but in recent times it has quickly caught up. There’s further evidence of this trend with the news that Xpension (trading as xbAV), an online platform for pensions and life insurance, has raised €25 million in its Series C financing round. This will take its total funding to date to more than €50 million.

The financing round was led by HPE Growth, a growth capital fund. Existing investors Cinco Capital, led by Lars Hinrichs (founder of XING and chairman of Xpension), and Armada Investment, led by Daniel S. Aegerter (founder of Tradex) also participated.

The new funding will be used to scale up Xpension’s corporate pension and life insurance SaaS platform in Germany; expand the offering into private pensions and life insurance and corporate health insurance; and prepare a rollout into other European countries. The company has also launched a video platform for agents to speak to clients, in the wake of the COVID-19 pandemic.

To date, Xpension has attracted more than 40 life insurers, 11,000 insurance agents and 3,000 SMEs onto its platform.

Martin Bockelmann, CEO & Founder commented: “After several years of intensive R&D and broad-based user acquisition, this partnership with HPE Growth allows us to unleash the full potential of our platform in Germany and abroad.”

Tim van Delden, Partner at HPE Growth, said: “The move online of the €2.5 trillion global pension and life insurance industry is a huge topic. A SaaS platform like Xpension – which connects life insurers, agents and their corporate and private customers to buy and manage policies – will be a game-changer.”

Speaking to TechCrunch, Hinrichs, the active Chariman and largest private shareholder, said: “We target not just occupational pensions but the entire segment, which is worth 700 billion Euros in premiums a year. German pensions are the leading pensions segment in Europe. And we are taking advantage of the recent changes in pension policy.”

It would appear that Xpension is in a strong position to potentially open up to end-consumers who don’t have pensions at some point, as have similar US platforms, or even to leverage its position to build its own insurance company at some point.

The pendulum will swing away from founder-friendly venture raises

By Alex Wilhelm

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

This morning brought fresh economic bad news for the US economy, with over 700,000 jobs lost in the latest report, despite the window of time measured not including some of March’s worst days, and the data itself not counting as many individuals as it might have; the unemployment rate still rose nearly a full point to 4.4%. The barometer generally expected to rise far higher in a month’s time.

Rising unemployment, markets in bear territory, shocking weekly unemployment claims, and some major states just starting lockdowns paint the picture of protracted downturn that has swamped our national and state-led economic response. Some help is coming, but individual payments are probably too small and too late. And a key program aimed at helping small businesses is rife with operational mistakes that will at least delay rollout.

It’s an economic catastrophe, and one that won’t lead to anything like a V-shaped recovery, the vaunted shape that everyone holding equities through the crisis was hoping for. We’re entering a prolonged slump. Precisely how bad isn’t yet known, yes, but it’s going to be bad, with unemployment staying elevated into 2021.

The impacts of the national economic slowdown are going to change the face of venture capital as we’ve come to know it during the last ten years. How so? Let’s talk about it.

After picking through some COVID-19-focused PitchBook data this morning, it’s clear that the era of founder friendly venture terms is heading for a reset. Even more, recent economic and market data, TechCrunch research and select trends already in motion help paint a picture of a changed startup reality.

So this morning let’s talk about what is coming up for the world of upstart companies and risk embracing capital.

Valispace raises $2.4M to become the ‘Github for hardware’, joins fight against COVID-19

By Mike Butcher

Hardware engineering is mostly document-based. A typical satellite might be described in several hundred thousand PDF documents, spreadsheets, simulation files and more; all potentially inconsistent between each other. This can lead to costly mistakes. NASA lost a $125 million Mars orbiter because one engineering team used metric units while another used English units, for instance.

Germany-HQ’d Valispace, which also has offices in Portugal, dubs itself as “Github for hardware”. In other words, it’s a collaboration platform for engineers, allowing them to develop better satellites, planes, rockets, nuclear fusion reactors, cars and medical devices, you name it. It’s a browser-based application, which stores engineering data and lets the users interconnect them through formulas. This means that when one value is changed, all other values are updated, simulations re-run and documentation rewritten automatically.

That last point is important in this pandemic era, where making and improving medical ventilators has become a huge global issue.

Indeed, the company is currently partnering with initiatives that develop open-source hardware solutions to the COVID-19 crisis. They are partnering with several initiatives that gather thousands of engineers working on the problem, most prominently the CoVent-19 Challenge and GrabCAD, as well as Helpful Engineering. Engineers working on ventilators can apply here for free accounts or email engineering-taskforce@valispace.com.

Valispace has now raised a Seed Extension funding round of €2.2M / $2.4M lead by JOIN Capital in Berlin and was joined by HCVC (Hardware Club), based in Paris.

The funding will be used to expand into new industries (e.g. medical devices, robotics) and expansion of the existing ones (aeronautics, space, automotive, energy). The company is addressing the Systems Engineering Tool market in Europe which is worth €7Billion, while the US market is at least as big. It’s competitors include RHEA CDP4, Innoslate, JAMA and the largest player Status Quo.

Marco Witzmann, CEO of Valispace said: “Valispace has proven to help engineers across industries to develop better hardware. From drones to satellites, from small electronic boxes to entire nuclear fusion reactors. When modern companies like our customers have the choice, they chose an agile engineering approach with Valispace.”

Tobias Schirmer from JOIN Capital commented: “Browser-based collaboration has become a must for any modern hardware company, as the importance of communication across teams and offices increases.”

The company now counts BMW, Momentus, Commonwealth Fusion Systems and Airbus as customers.
Witzmann previously worked on Europe’s biggest Satellite Program (Meteosat Third Generation) as a Systems Engineer, while his Portugal-based co-founder Louise Lindblad (COO) worked at the European Space Agency, developing satellites and drones.

As satellite engineers, both were surprised that while the products they were working on were cutting edge, the tools to develop them seemed to be from the 80s. In 2016 they launched Valispace as a company, convincing Airbus to become one of their first customers.

Longtime VC Neil Sequeira: Funding founders without in-person meetings is ‘quite difficult’

By Connie Loizos

Neil Sequeira was a managing director with General Catalyst for more than 13 years before co-founding early-stage firm Defy several years ago with another veteran of the industry, Trae Vassallo, who’d spent the dozen years prior with Kleiner Perkins.

We caught up with Sequeira yesterday afternoon and discussed whether he’s seeing valuations come down and whether he can imagine funding founders who may have an exciting pitch but is unable to meet in-person due to the pandemic.

Our chat has been edited for length.

TechCrunch: How are you, all things considered?

Neil Sequeira: We’ve been pretty busy at home. Obviously, my kids are home, homeschooling and my amazing wife is with them.

At work, we’ve been really busy. We have multiple term sheets out that we’ve done since the stay-at-home order [in the Bay Area] and I actually live within walking distance of my office, where I’m alone but it ends up being like a home office because it’s so close. And it’s great because my kids have been going bonkers.

How are your companies faring?

Before yesterdayYour RSS feeds

ARCH Venture Partners raises $1.46 billion across two funds for biotech investing

By Jonathan Shieber

Against a backdrop where the life-or-death consequences of biotechnology innovation are becoming increasingly apparent as the world races to develop vaccines and therapies to treat COVID-19, life sciences investor ARCH Venture Partners has raised $1.46 billion in funding to finance new tech development.

The two funds, ARCH Venture Fund X and ARCH Venture Fund X Overage, are the latest in the firm’s long line of investment vehicles dedicated to invest in early stage biotechnology companies.

“ARCH has always been driven to invest in great science to impact human health. There isn’t a better illustration of our principles than our all-in battle against COVID-19,” said co-founder and Managing Director Robert Nelsen in a statement. “The healthcare revolution will be accelerated by the changes that are happening now and we are excited to continue to invest aggressively in risk takers doing truly transformational science.”

ARCH portfolio companies Vir Biotechnology, Alnylam Pharmaceuticals, VBI Vaccines, Brii Biosciences, and Sana Biotechnology are all working on COVID-19 therapeutics; while Quanterix is developing technology to support clinical testing and clinical trial development. Another company that ARCH has backed, Twist Biosciences, has gene editing tools that the company believes can support therapeutic and vaccine development; and Bellerophon, a developer of inhaled nitric oxide delivery technologies, received emergency access approval from the FDA as a treatment to help alleviate respiratory distress associated with COVID-19.

The firm’s Overage fund will be used to take larger stakes in later-stage companies that require more capital, the firm said.

“Our companies bring cutting-edge science, tools and talent to bear in developing medicines for a wide range of diseases and conditions faced by millions. With these two new funds, we are continuing that work with urgency and a deep sense of purpose,” managing director Kristina Burow said in a statement. “We invest at all levels, whether it’s fifty thousand dollars or hundreds of millions, so that each company and each technology has the best chance to advance and change the landscape.”

The two new funds are roughly the same size as ARCH’s last investment funds, which closed in 2016 with $1.1that billion, but are a big jump from the 2014 ARCH funds that raised $560 million in total capital commitments.

The increasing size of the ARCH funds is a reflection of a broader industry trend which has seen established funds significantly expand their capital under management, but also is indicative of the rising status of biotech investing in the startup landscape.

These days, it’s programmable biology, not software, that’s eating the world.

“ARCH remains committed to our mission of the last 35 years, advancing the most promising innovations from leading life science and physical sciences research to serve the worldwide community by addressing critical health and well-being challenges,” said Keith Crandell in a statement. “ARCH has been privileged to found, support and invest in groundbreaking new companies pursuing advancements in infectious disease, mental health, immunology, genomic and biological tools, data sciences and ways of reimagining diagnostics and therapies.”

Managing directors for the new fund include Robert Nelsen, Keith Crandell, Kristina Burow, Mark McDonnell, Steve Gillis and Paul Thurk.

How 6 top VCs are adapting to the new uncertainty

By Arman Tabatabai

As the global economy grinds to a halt, every business sector has been impacted, including the linked worlds of startups and venture capital.

But how much has really changed? If you read VC Twitter, you might think that nothing has changed at all. It’s not hard to find investors who say they are still cutting checks and doing deals. But as Q1 venture data trickles in, it appears that a slowdown in VC activity is gradually forming, something that founders have anecdotally shared with TechCrunch.

To get a better handle on how venture capitalists are approaching today’s market, TechCrunch corresponded with a number of active investors to learn how their investment selection process might be changing in light of COVID-19 and its related disruptions. We wanted to know how their investing cadence in Q1 2020 compared to the final quarter of 2019 and the prior-year period. We also asked if their focus had changed, how valuations have shifted and what their take on the LP market is today.

We heard back from Duncan Turner of SOSV, Alex Doll of TenEleven Ventures, Alex Niehenke of Scale Venture Partners, Paul Murphy of Northzone, Sean Park of Anthemis and John Vrionis of Unusual Ventures.

We’ll start with the key themes from their answers and then share each set of responses in detail.

Three key themes for raising in 2020

The VCs who responded haven’t slowed their investing pace — yet.

There’s likely some selection bias at work, but the venture capitalists who were willing to answer our questions were quick to note that they wrote a similar number of checks in Q1 2020 as in both Q4 2019 (the sequentially preceding quarter) and Q1 2019 (the year-ago quarter). Some were even willing to share numbers.

SoftBank terminates $3B tender offer for WeWork shares

By Natasha Lomas

SoftBank Group has pulled a $3 billion tender offer for WeWork shares — citing closing conditions not being met.

The investment behemoth had been rumoured to be getting cold feet, when the WSJ reported last month that it was using regulatory investigations as a way to back out of its commitment to buy $3BN in shares from existing WeWork shareholders.

Under the terms of the share buyback deal negotiated last year, WeWork founder Adam Neumann had been set to receive almost $1BN for his shares in the co-working company. The former CEO had already been forced out at that stage after public markets balked over his managerial acumen, as we reported it at the time.

In a press statement issued today SoftBank SVP and chief legal officer, Rob Townsend, writes:

SoftBank remains fully committed to the success of WeWork and has taken significant steps to strengthen the company since October, including newly committed capital, the development of a new strategic plan for WeWork and the hiring of a new, world-class management team. The tender offer was an offer to buy shares directly from other major stockholders and its termination has no impact on WeWork’s operations or customers. The tender offer closing was conditioned on the satisfaction of certain closing conditions the parties agreed to in October of last year for SoftBank’s protection. Several of those conditions were not met, leaving SoftBank no choice but to terminate the tender offer.

SoftBank lists the unfulfilled conditions that have led it to terminate the offer as:

  • The failure to obtain the necessary antitrust approvals by April 1, 2020;
  • The failure to sign and close the roll up of the China joint venture by April 1, 2020;
  • The failure to close the roll up of the Asia (ex-China and ex-Japan) joint venture by April 1, 2020;
  • The existence of multiple, new, and significant pending criminal and civil investigations that have begun since the MTA was signed in October 2019, in which authorities have requested information regarding, among other things, WeWork’s financing activities, communications with investors, business dealings with Adam Neumann, operations, and financial condition; and
  • The existence of multiple new actions by governments around the world related to COVID-19, imposing restrictions against WeWork and its operations.

A spokeswomen for WeWork declined to comment on SoftBank withdrawing the offer. But Reuters has reported that a special committee of WeWork’s board said it was “disappointed” by the development and is  considering “all of its legal options, including litigation.”

At the time of writing SoftBank had not responded to a request for comment.

Its press note makes a point of emphasizing that “Neumann, his family, and certain large institutional stockholders, such as Benchmark Capital, were the parties who stood to benefit most from the tender offer”.

“Together, Mr. Neumann’s and Benchmark’s equity constitute more than half of the stock tendered in the offering. In contrast, current WeWork employees tendered less than 10 percent of the total,” it writes, adding: “SoftBank previously worked with WeWork to complete an earlier phase of the tender offer that allowed over 4,000 employees to reprice out-of-the-money stock options at lower strike prices, delivering value in excess of $140 million to these employees in the form of reduced exercise prices (where such options would have been worth substantially less or nothing absent such repricing).”

Earlier this week WeWork announced the sale of Meetup, a social networking platform designed to connect people in person, for an undisclosed sum that’s reportedly far less than the $156M acquisition price WeWork paid for it back in 2017.

The novel coronavirus has certainly brought disruption to the hipster white collar co-working and social networking business, as populations are encouraged do to the opposite of mingle. The near term prospects for co-working spaces in a new age of social distancing and encouraged (or enforced) home working look bleak.

Yet, outside Asia, WeWork has to date closed only a tiny minority of its locations globally as a result of the coronavirus pandemic.

Even in heavily affected cities in Europe, such as Madrid and Milan — where governments have imposed strict quarantine measures to try to stem the tide of COVID-19 deaths — WeWork has not taken the step of shuttering co-working spaces.

Instead, in Europe and the US, it has only been temporarily closing buildings or even just individual floors if infections are identified.

It’s a different story in Asia. Per an updated list of building closures on WeWork’s website, the company closed more than 30 locations across cities in India on March 23 — but only after the government imposed a three-week nationwide lockdown, instructing India’s 1.3BN people to stay at home.

Elsewhere, WeWork members may see little reason to break quarantine in order to travel to a shared workspace when, provided they have Internet at home, they can stay where they are and be just as productive without risking spreading or catching the virus — hence the Zoom videoconferencing boom.

WeWork’s handling of the coronavirus crisis has also caused some rifts with its membership, with press reports of members angry at it for refusing refunds for spaces they can’t (in good conscience) use.

It has also faced criticism from members angry it’s prioritizing rent collection from now very cash-strapped small businesses rather than closing down during a public health crisis. (We’ve heard similar stories from members who did not wish to be publicly identified.)

WeWork, meanwhile, has justified staying open in a pandemic by claiming its locations contain people doing essential work.

When we asked the company about its response to the coronavirus last month, it told us: “We are monitoring the coronavirus (COVID-19) pandemic closely and have implemented a number of precautionary measures” — saying then it had strengthened “on-site cleanliness measures” and suspended all internal and member events until further notice, as of March 12.

On the same date it had offered its own staff the option of working from home — though its doors remained open to keycard-holding, fee-paying members.

‘A perfect storm for first time managers,’ say VCs with their own shops

By Connie Loizos

Until very recently, it had begun to seem like anyone with a thick enough checkbook and some key contacts in the startup world could not only fund companies as an angel investor but even put himself or herself in business as a fund manager.

It helped that the world of venture fundamentally changed and opened up as information about its inner workings flowed more freely. It didn’t hurt, either, that many billions of dollars poured into Silicon Valley from outfits and individuals around the globe who sought out stakes in fast-growing, privately held companies — and who needed help in securing those positions.

Of course, it’s never really been as easy or straightforward as it looks from the outside. While the last decade has seen many new fund managers pick up traction, much of the capital flooding into the industry has accrued to a small number of more established players that have grown exponentially in terms of assets under management. In fact, talk with anyone who has raised a first-time fund and you’re likely to hear that the fundraising process is neither glamorous nor lucrative and that it’s paved with very short phone conversations. And that’s in a bull market.

What happens in what’s suddenly among the worst economic environments the world has seen? First and foremost, managers who’ve struck out on their own suggest putting any plans on the back burner. “I would love to be positive, and I’m an optimist, buut I would have to say that now is probably one of the toughest times” to get a fund off the ground,” says Aydin Senkut, who founded the firm Felicis Ventures in 2006 and just closed its seventh fund.

It’s a perfect storm for first-time managers,” adds Charles Hudson, who launched his own shop, Precursor Ventures, in 2015.

Hitting pause doesn’t mean giving up, suggests Eva Ho, cofounder of the three-year-old, seed-stage L.A.-based shop Fika Ventures, which last year closed its second fund with $76 million. She says not to get “too dismayed” by the challenges. Still, it’s good to understand what a first-time manager is up against right now, and what can be learned more broadly about how to proceed when the time is right.

Know it’s hard, even in the best times

As a starting point, it’s good to recognize that it’s far harder to assemble a first fund than anyone who hasn’t done it might imagine.

Hudson knew he wanted to leave his last job as a general partner with SoftTech VC when the firm — since renamed Uncork Capital — amassed enough capital that it no longer made sense for it to issue very small checks to nascent startups. “I remember feeling like, ‘Gosh, I’ve reached a point where the business model for our fund is getting in the way of me investing in the kind of companies that naturally speak to me,” which is largely pre-product startups.

Hudson suggests he may have overestimated interest in his initial idea to create a single GP fund that largely backs ideas that are too early for other investors. “We had a pretty big LP based [at SoftTech] but what I didn’t realize is the LP base that’s interested in someone who is on fund three or four is very different than the LP base that’s interested in backing a brand new manager.”

Hudson says he spent a “bunch of time talking to fund of funds, university endowments — people who were just not right for me until someone pulled me aside and just said, ‘Hey, you’re talking to the wrong people. You need to find some family offices. You need to find some friends of Charles. You need to find people who are going to back you because they think this is a good idea and who aren’t quite so orthodox in terms of what they want to see in terms partner composition and all that.'”

Collectively, it took “300 to 400 LP conversations” and two years to close his first fund with $15 million. (Its now raising its third pre-seed fund).

Ho says it took less time for Fika to close its first fund but that she and her partners talked with 600 people in order to close their $41 million debut effort, adding that she felt like a “used car salesman” by the end of the process.

Part of the challenge was her network, she says. “I wasn’t connected to a lot of high-net-worth individuals or endowments or foundations. That was a whole network that was new to me, and they didn’t know who the heck I was, so there’s a lot of proving to do.” A proof-of-concept fund instill confidence in some of these investors, though Ho notes you have to be able to live off its economics, which can be miserly.

She also says that as someone who’d worked at Google and helped found the location data company Factual, she underestimated the work involved in running a small fund. “I thought, ‘Well, I’ve started these companies and run these big teams. How how different could it be? Learning the motions and learning what it’s really like to run the funds and to administer a fund and all responsibilities and liabilities that come with it . . . it made me really stop and think, ‘Do I want to do this for 20 to 30 years, and if so, what’s the team I want to do it with?'”

Investors will offer you funky deals; avoid these if you can

In Hudson’s case, an LP offered him two options, either a typical LP agreement wherein the outfit would write a small check, or an option wherein it would make a “significant investment that have been 40% of our first fund,” says Hudson.

Unsurprisingly, the latter offer came with a lot of strings. Namely, the LP said it wanted to have a “deeper relationship” with Hudson, which he took to mean it wanted a share of Precursor’s profits beyond what it would receive as a typical investor in the fund.

“It was very hard to say no to that deal, because I didn’t get close to raising the amount of money that I would have gotten if I’d said yes for another year,” says Hudson. He still thinks it was the right move, however. “I was just like, how do I have a conversation with any other LP about this in the future if I’ve already made the decision to give this away?”

Fika similarly received an offer that would have made up 25 percent of the outfit’s debut fund, but the investor wanted a piece of the management company. It was “really hard to turn down because we had nothing else,” recalls Ho. But she says that other funds Fika was talking with made the decision simpler. “They were like, ‘If you sign on to those terms, we’re out.” The team decided that taking a shortcut that could damage them longer term wasn’t worth it.

Your LPs have questions, but you should question LPs, too

Senkut started off with certain financial advantages that many VCs do not, having been the first product manager at Google and enjoying the fruits of its IPO before leaving the outfit in 2005 along with many other Googleaires, as they were dubbed at the time.

Still, as he tells it, it was “not a friendly time a decade ago” with most solo general partners spinning out of other venture funds instead of search engine giants. In the end, it took him “50 no’s before I had my first yes” — not hundreds —   but it gave him a taste of being an outsider in an insider industry, and he seemingly hasn’t forgotten that feeling.

Indeed, according to Senkut, anyone who wants to crack into the venture industry needs to get into the flow of the best deals by hook or by crook. In his case, for example, he shadowed angel investor Ron Conway for some time, working checks into some of the same deals that Conway was backing.

“If you want to get into the movie industry, you need to be in hit movies,” says Senkut. “If you want to get into the investing industry, you need to be in hits. And the best way to get into hits is to say, ‘Okay. Who has an extraordinary number of hits, who’s likely getting the best deal flow, because the more successful you are, the better companies you’re going to see, the better the companies that find you.”

Adds Senkut, “The danger in this business is that it’s very easy to make a mistake. It’s very easy to chase deals that are not going to go anywhere. And so I think that’s where [following others] things really helped me.”

Senkut has developed an enviable track record over time. The companies that Felicis has backed and been acquired include Credit Karma, which was just gobbled up by Intuit; Plaid, sold in January to Visa; Ring, sold in 2018 to Amazon, and Cruise, sold to General Motors in 2016, and that’s saying nothing of its portfolio companies to go public.

That probably gives him a kind of confidence that it’s harder to earlier managers to muster. Still, Senkut also says it’s very important for anyone raising a fund to ask the right questions of potential investors, who will sometimes wittingly or unwittingly waste a manager’s time.

He says, for example, that with Felicis’s newest fund, the team asked many managers outright about how many assets they have under management, how much of those assets are dedicated to venture and private equity, and how much of their allotment to each was already taken. They did this so they don’t find themselves in a position of making a capital call that an investor can’t meet, especially given that venture backers have been writing out checks to new funds at a faster pace than they’ve ever been asked to before.

In fact, Felicis added new managers who “had room” while cutting back some existing LPs “that we respected . .. because if you ask the right questions, it becomes clear whether they’re already 20% over-allocated [to the asset class] and there’s no possible way [they are] even going to be able to invest if they want to.”

It’s a “little bit of an eight ball to figure out what are your odds and the probability of getting money even if things were to turn south,” he notes.

Given that they have, the questions look smarter still.

Proposed amendments to the Volcker Rule could be a lifeline for venture firms hit by market downturn

By Jonathan Shieber

In the wake of the financial crisis, Congress passed regulations limiting the types of investments that banks could make into private equity and venture capital funds. As cash strapped investors pull back on commitments to venture funds given the precipitous drop of public market stocks, loosening restrictions on the how banks invest cash could be a lifeline for venture funds.

That’s the position that the National Venture Capital Association is taking on the issue in comments sent to the chairs of the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corp., and the Commodities Future Trading Commission.

The proposed revisions of the Volcker Rule would exclude qualifying venture capital funds from the covered fund definition.

“The loss of banking entities as limited partners in venture capital funds has had a disproportionate impact on cities and regions with emerging entrepreneurial ecosystems — areas outside of Silicon Valley and other traditional technology centers,” NVCA president and chief executive Bobby Franklin wrote. “The more challenging reality of venture fundraising in these areas of the country tends to require investment from a more diverse set of limited partners.”

Franklin cited the case of Renaissance Venture Capital, a Michigan-based regionally focused fund that estimated the Volcker Rule cost them $50 million in potential capital commitments resulting in the loss of a potential $800 million in capital invested in the state of Michigan.

“This narrative unfortunately repeats itself, as we have heard firsthand from investors about how the Volcker Rule has affected venture capital investment and entrepreneurial activity across the country,” wrote Franklin. “The majority of these concerns about the Volcker Rule have come from members located in regions with emerging ecosystems, including states like Ohio, Michigan, North Carolina, New Hampshire, Wisconsin, Georgia, and Virginia, to name a few.”

It’s not only small states that could be impacted by the decision to reverse course on banking investments into venture firms in these uncertain times.

There’s a growing concern among venture investors that — just like in 2008 — their limited partners might find that they’re over-allocated into venture investments given the decline in markets, which would force them to pull back on making commitments to new funds.

“Institutional LPs will run into the same issues they had in 2008. If you used to manage $10B and the market declines and you now manage $6B, the percentage allocated to private equity has now increased relative to the whole portfolio,” Hyde Park Ventures partner, Ira Weiss told a Forbes columnist in a March interview. “They’re really not going to look at new managers. If you’ve done really well as a manager, they will probably re-up but may reduce commitment amounts. This will bleed backwards into the venture market. This is happening at a time when Softbank has already had a lot of trouble and people had not really modulated for that yet, but now they will.”

Some of the largest investment funds have already closed on capital, insulating them from the worst hits. These include funds like New Enterprise Associates and General Catalyst . But newer funds are going to have a harder time raising. For them, giving banks the ability to invest in venture firms could be a big boon — and a confidence boost that the industry needs at a time when investors across the board are getting skittish.

“Fundraising for new funds in 2020 and 2021 might prove to be more difficult as asset managers think about rebalancing their portfolio and/or protecting their assets from the current volatility in the market,” Aaron Holiday told Forbes . “This means that VC investing could slow down in 12 – 24 months after the most recent wave of funds (i.e. 2018 and 2019 vintages) are fully deployed.”

Venture debt’s new reality: ‘The last thing we want is management walking away from a company’

By Connie Loizos

Maurice Werdegar is the longtime CEO of venture debt shop Western Technology Investment, one of the most active venture debt lenders in the U.S.

It’s also one of the older firms, having loaned out money for roughly 40 years to startups that needed to achieve certain milestones, reach profitability or wanted additional runway and didn’t necessarily want to raise a new round (especially if that next round might be at a lower valuation).

It’s a needed service and a boon for startups in good times. But when the market turns, debt can prove much trickier.

Indeed, though Werdergar understands founders well — he was once the CEO of a venture-backed restaurant chain that did really well, until they didn’t — he also has to make certain that when the market shifts, things don’t go south for WTI, as well. That can mean long, hard conversations with founders who need to renegotiate their debt payments.

Because COVID-19 is wreaking widespread economic havoc, we talked with Werdegar last week to learn what’s happening in his world and what WTI can do for clients who are now in a bind. Our chat has been edited for length.

TechCrunch: There are other venture debt players out there. How do you differ from your competitors?

Maurice Werdegar: One is we’re not publicly traded; we’re a private BDC [business development company], so we get our money from institutional investors, university endowments, nonprofits, sovereign wealth funds and groups like that. We’re a team that’s comprised primarily of former entrepreneurs; all of us have started and run our own businesses and work closely in the entrepreneurial environments. And we don’t use financial covenants, nor do we use subjective defaults.

What happens to edtech when kids go back to school?

By Natasha Mascarenhas

In just a few weeks, homeschooling has gone from a rarity to a baseline in homes across the country.

Jonah Liss, a 16-year-old student at International Academy of Bloomfield Hills in Michigan, was sent home out of precaution due to the coronavirus outbreak.

While the transition has been okay for Liss, who has used some of the extra time to create a service to help those impacted by COVID-19, he recognized that other students are experiencing some pain points; not everyone has access to the same technology outside of school, so they can’t complete assignments. The school, he says, isn’t giving tests because they have no way to prove students aren’t cheating. And learning doesn’t feel personalized.

“It can be difficult to learn in an environment where there is less structure, direct instruction and ability to ask as many questions as possible,” Liss said. His school is placing emphasis on Google Classroom, Hangouts, Zoom and Khan Academy — all currently free for schools that have been shut down.

Edtech companies are seeing a usage surge because they’re offering services for free or at discounted rates to schools that are scrambling to switch to remote learning. But when students return to campus, many of the hurdles to adopting education technology will persist.

And as edtech startups find their time in the spotlight, these emerging challenges must be addressed before companies can truly convert those free customers into paying ones.

Investors tell Indian startups to ‘prepare for the worst’ as COVID-19 uncertainty continues

By Manish Singh

Just three months after capping what was the best year for Indian startups, having raised a record $14.5 billion in 2019, they are beginning to struggle to raise new capital as prominent investors urge them to “prepare for the worst” and cut spending.

In an open letter to startup founders in India, ten global and local private equity and venture capitalist firms including Accel, Lightspeed, Sequoia Capital and Matrix Partners cautioned that the current changes to the macro environment could make it difficult for a startup to close their next fundraising deal.

The firms, which included Kalaari Capital, SAIF Partners, and Nexus Venture Partners — some of the prominent names in India to back early-stage startups — asked founders to be prepared to not see their startups’ jump in the coming rounds and have a 12-18 month runway with what they raise.

“Assumptions from bull market financings or even from a few weeks ago do not apply. Many investors will move away from thinking about ‘growth at all costs’ to ‘reasonable growth with a path to profitability.’ Adjust your business plan and messaging accordingly,” they added.

Signs are beginning to emerge that investors are losing appetite to invest in the current scenario.

Indian startups participated in 79 deals to raise $496 million in March, down from $2.86 billion that they raised across 104 deals in February and $1.24 billion they raised from 93 deals in January this year, research firm Tracxn told TechCrunch. In March last year, Indian startups had raised $2.1 billion across 153 deals, the firm said.

New Delhi ordered a complete nation-wide lockdown for its 1.3 billion people for three weeks earlier this month in a bid to curtail the spread of COVID-19.

The lockdown, as you can imagine, has severely disrupted businesses of many startups, several founders told TechCrunch.

Vivekananda Hallekere, co-founder and chief executive of mobility firm Bounce, said the firm had cut salary across the board — except for those who make less than $3,950 a year. “Founders would take a 100% pay cut. This will give us run-way of beyond 30 months. Glad we raised money when we didn’t need,” he said.

Founder of a Bangalore-based startup, which was in advanced stages to raise more than $100 million, said investors have called off the deal for now. He requested anonymity.

Food delivery firm Zomato, which raised $150 million in January, said it would secure an additional $450 million by the end of the month. Two months later, that money is yet to arrive.

Many startups are already beginning to cut salaries of their employees and let go of some people to survive an environment that aforementioned VC firms have described as “uncharted territory.”

Travel and hotel booking service Ixigo said it had cut the pay of its top management team by 60% and rest of the employees by up to 30%. MakeMyTrip, the giant in this category, also cut salaries of its top management team.

Beauty products and cosmetics retailer Nykaa on Tuesday suspended operations and informed its partners that it would not be able to pay their dues on time.

Investors cautioned startup founders to not take a “wait and watch” approach and assume that there will be a delay in their “receivables,” customers would likely ask for price cuts for services, and contracts would not close at the last minute.

“Through the lockdown most businesses could see revenues going down to almost zero and even post that the recovery curve may be a ‘U’ shaped one vs a ‘V’ shaped one,” they said.

On-demand shuttle startup Via hits $2.25 billion valuation on latest funding round led by Exor

By Kirsten Korosec

On-demand shuttle startup Via has hit a $2.25 billion valuation following a Series E funding round led by Exor, the Agnelli family holding company that owns stakes in PartnerRe, Ferrari and Fiat Chrysler Automobiles.

The Series E funding round, which included other investors, totaled $400 million, according to a source familiar with the deal. Exor invested $200 million into Via as part of the round, both companies said in an announcement. Noam Ohana, who heads up Exor Seeds, the holding company’s early-stage investment arm, will join Via’s board.

New investors Macquarie Capital, Mori Building and Shell also participated in the round, as well as existing investors 83North, Broadscale Group, Ervington Investments, Hearst Ventures, Planven Ventures, Pitango and RiverPark Ventures.

Via, which employs about 700 people, plans to use most of these funds to expand its “partnerships,” the software services piece of its business. Via has two sides to its business. The company operates consumer-facing shuttles in Chicago, Washington, D.C. and New York. But the core of its business is really its underlying software platform, which it sells to cities and transportation authorities to deploy their own shuttles.

When the company first launched in 2012, there was little interest from cities in the software platform, according to co-founder and CEO Daniel Ramot . The company started by focusing on its consumer-facing shuttles. Over time, and using the massive amounts of data it collected through these services, Via improved its dynamic, on-demand routing algorithm, which uses real-time data to route shuttles to where they’re needed most.

Via landed its first city partnership with Austin in late 2017, after providing the platform to the transit authority for free. It was enough to allow Via to develop case studies and convince other cities to buy into the service. In 2019, the partnerships side of the business “took off,” Ramot said in a recent interview, adding that the company was signing on two to three cities a week before the COVID-19 pandemic.

Today, the Via platform is used by more than 100 partners, including cities such as Los Angeles and Cupertino, Calif., and Arriva Bus UK, a Deutsche Bahn company that uses it for a first and last-mile service connecting commuters to a high-speed train station in Kent, U.K.

Raising funds in a pandemic

Via managed to close the funding round during an inauspicious time for startups that have found it increasingly difficult to lock in capital due to the COVID-19 pandemic. COVID-19, a disease caused by the coronavirus, has upended markets, along with every industrial and business sector, from manufacturing and transportation to energy and real estate.

Via managed to raise a sizable fund, which just closed, despite the credit tightening and uncertainty. Ramot told TechCrunch that while he was worried the round might be delayed, he noted that Exor is a long-term and patient investor that shares the company’s “same vision of where transit is going.”

Even now, as nearly every category within transportation — including public transit, ride-hailing, shared micromobility and airlines — has seen ridership drop or dry up altogether, Ramot and Ohana see a promising future.

Ohana said that the market is starting to understand the limits of ride-hailing — hurdles such as poor unit economics and an uncertain path to profitability. “On the other hand, the size of the market for an on-demand dynamic shuttle service is large and underappreciated,” Ohana said. “When we look at public transit today, there is a significant opportunity for Via, which already has impressive experience working with municipal and public transit partners across the globe.”

That doesn’t mean Via is immune to the widespread tumult caused by the COVID-19 pandemic. Via’s consumer business has been negatively affected as ridership has dropped due to the spreading disease.

However, there has been some promise with its partnerships business, Ramot said.

Existing partners, a list that includes transit authorities in Berlin, Germany, Ohio and Malta, have worked with Via to convert or adapt the software to meet new needs during the pandemic. A city might dedicate its shuttle service to transporting goods or essential personnel. For instance, Berlin converted its 120-shuttle fleet transport to an overnight service that provides free transit to healthcare workers traveling to and from work.

“There has been a real interest in emergency services,” Ramot said, adding he expects to see more demand for the software platform and the flexibility it provides as the pandemic unfolds.

General Catalyst just announced $2.3 billion in new capital commitments across three funds

By Connie Loizos

General Catalyst, the 20-year-old venture firm that has been bulking up in recent years, announced this morning that it has secured $2.3 billion in capital commitments across three funds: a $600 million early-stage fund, a $1 billion growth fund for companies with $10 million-plus in annual revenue and a $700 million “endurance fund” to back large companies doing more than $100 million in sales, as reported earlier in Forbes.

It’s an impressive amount for the firm, which last closed a $1.4 billion fund in 2018 that combined its early and growth-stage investments — which was itself a huge leap from the $845 million in capital that General Catalyst raised in early 2016 across two funds.

Seemingly, the idea is to compete in more later-stage deals, which could well come down in price as other, non-traditional backers are forced to retrench from the suddenly dicey market.

SoftBank, whose fortunes have shifted, is one example. Mutual fund investors that have flocked to privately held companies will likely start committing less capital to illiquid startups right now, too, especially given that the IPO window is shut for the foreseeable future.

The firm tells Forbes it’s also looking to back sectors that are more relevant than ever in the era of coronavirus, including healthcare software, technologies for remote education and working.

Just today, Olive, a Columbus, Ohio-based healthcare startup that’s looking to AI-enabled robotic process automation solution, said it has raised $51 million in funding led by General Catalyst, with participation from its earlier backers. FierceHealthcare has more here.

Still, the firm’s limited partners, including university endowments and pension funds, have also seen their assets hard hit by the sudden economic downturn. It will surely make the kind of commitments they’ve made to General Catalyst and other firms to recently announce giant funds a little trickier to execute.

While there’s no reason to think they won’t fulfill their obligations, during the last major downturn in the startup world back in 2000 (the 2008 recession hit Wall Street much harder than Silicon Valley), some venture firms wound up reducing the size of their funds.

In part, they did this to ease the financial obligations of their limited partners. In part, they suddenly needed a lot less capital. Another reason they cut back what were then record-breaking-size funds was the harsh realization that the more they raised, the harder it would be to produce venture-like returns.

General Catalyst has a number of high-flying bets in its portfolio. Among them: Stripe and Airbnb. It isn’t yet clear how Stripe is faring in the current environment, but Airbnb and its hosts around the world have been struggling as much of the world shelters in place.

Though the company originally expected to go public in 2020, those plans seem highly unlikely now.

[Postponed] Join the FirstMark Capital squad for a live Q&A on Zoom tomorrow at 9am PDT

By Jordan Crook

Update: Unfortunately, we’re going to have to postpone this call. We’ll be in touch soon with the new dates. In the meantime, we have plenty of exciting calls slated and can’t wait to share them with you. Stay tuned!

Stuck at home?

JK! I know you are! You’re not alone.

FirstMark Capital partners Rick Heitzmann, Amish Jani, Matt Turck, Beth Ferreira, and Adam Nelson are also working from home. But neither distance nor virus can truly keep us all apart.

That’s why I’m thrilled to announce that tomorrow at 12pm EDT/9am PDT, we will be joined by these wonderful FirstMark partners for a live Zoom chat.

We’ll ask how they’re advising their portfolio companies during these challenging times, how COVID-19 has changed their investment thesis (if at all) and what trends are exciting to them. More importantly, guests of the Zoom will also be able to ask questions and have them answered live on the call.

FirstMark has an impressive portfolio that includes Shopify, Airbnb, InVision, Pinterest, DraftKings, Discord and many, many more. The NYC-based firm is on its fourth early-stage fund and second growth-stage fund, with $480 million between the pair. (TechCrunch covered FirstMark’s latest funds here.)

I’m amped to talk to Heitzmann, Jani, Turck, Ferreira and Nelson and hope you’ll join us. Interested? Hit up this Zoom link at 12pm EDT/9am PDT to take part! (Please observe normal human manners: Wear clothes, don’t screenshare, generally be polite.)

We’ll publish a lightly edited audio recording and transcript to Extra Crunch on Thursday for folks who miss out! But for everyone who can make it, we’ll see you tomorrow at noon Eastern. West Coast folks can dial in over breakfast.

How to value a startup in a downturn

By Alex Wilhelm

The value of technology companies has fallen as the broader public markets have repriced themselves in light of COVID-19-related market and economic disruptions.

And as the public markets sort out the new value of a huge piece of global business, private companies are being shaken as well.

What happens in the public markets trickles into the private markets, so if we’re seeing the value of public tech companies fall, startups are going to take a hit. To understand that dynamic, we spoke with Mary D’Onofrio, an investor with Bessemer Venture Partners. She’s the right person to chat with about the links between private valuations and public share prices as she not only helps put capital into growing startups, she also helps run the Bessemer cloud index (now a partnership with Nasdaq, and trackable on a day-to-day basis).

As she’s versed on both sides of the public-private divide, we asked her how she values startups in normal market conditions and in more turbulent times like today. We also dug into how founders are reacting to the changing world that may no longer be as amenable to their business plans. Pulling from our conversation, D’Onofrio told TechCrunch that startups want to be valued like companies were a few months ago, while investors want to pay today’s market prices.

But enough introduction, let’s get to the conversation. This interview has been edited for length and clarity; thanks to Holden Page and Walter Thompson for help with the transcription.

TechCrunch: During our last conversation, we discussed how to value startups. You explained a method in which you consider the future value of cash flows. How do you value startups today versus how much you think they’ll be worth down the road?

Mary D’Onofrio: I think what’s important to know is that outside of a market disruption, which I think was the the nature of the question to begin with, cloud software tends to trade on revenue and revenue growth. Companies should fundamentally be valued on the present value of their future free cash flows. But I think with cloud software, in particular, there’s a prioritization of taking [market]share, and then applying a very long term healthy margin structure on a very massive revenue base once you get there, and generating cash then.

And so I think in bull markets, when capital is readily available, prioritizing growth makes a lot of sense because you want to capture as much share as you can. And then losses are also tolerable because the capital is available to fund that massive growth. And there are actual measurable metrics that validate that structure, with CLTV to CAC [customer lifetime value to customer acquisition costs] being one of them.

When is it time to stop fundraising?

By Walter Thompson
Russ Heddleston Contributor
Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe, and Trulia. Follow him here: @rheddleston and @docsend

No one wants to prepare for their fundraising round to fail. Many founders spend months (or even years) getting their businesses to a point where they’re ready to pitch investors. But there are times when, no matter how hard you try, you’re just not going to be able to close a deal.

With the current COVID-19 pandemic, the entire VC community is in a state of uncertainty, and there is no clear answer when it comes to the question, “can I still raise funds for my company?” However, there’s hope for early-stage startups. We used the 2020 DocSend Startup Index to track Pitch Deck Interest among investors and found that last week, despite seismic changes across the country, pitch deck interest has only been 11.6% lower than the same week in 2019 so far.

We will be monitoring the Pitch Deck Interest Metric in the coming weeks, but if you’re an early-stage startup and you were planning to raise, there is still opportunity to come away with a term sheet. But if things don’t go as planned, how do you know if it’s time to give up or if you just need to push through?

According to recent DocSend data, you’ll know pretty quickly if it’s time to call it quits. While the average founder who was successful in fundraising contacted 63 investors during their process, startups that weren’t able to raise funds stopped at 27. Why stop? Because the founder listened to the feedback they were getting. If you hear the same concern or piece of feedback twice you should take it to heart, but if you hear it three times you probably need to stop and rethink things.

time spent reading pitch decks

The Pitch Deck Interest Metric declined 11.6% compared to the same week in 2019

According to our study on the fundraising process of pre-seed startups, founders who were unsuccessful in raising had just nine meetings. That should give you enough feedback to know if you have a deal breaker in your deck.

But negative feedback doesn’t mean all is lost. In fact, of startups studied in the 2020 DocSend Startup Index, 86% reported that they were going to try to fundraise again after addressing the feedback they’d received.

Now might be the perfect time to rethink your fundraising approach

By Walter Thompson
Russ Heddleston Contributor
Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe, and Trulia. Follow him here: @rheddleston and @docsend

Many founders will have kicked off the new year with a new fundraising round. According to the data we shared last year, March, October and November were the months when VCs were reviewing the most decks.

But the COVID-19 pandemic has ground to a halt many industries, and there are even warnings that this will affect the next two quarters in regards to fundraising.

We’ve reviewed the data in our 2020 DocSend Startup Index and we’ve begun tracking the Pitch Deck Interest Metric. With San Francisco under a shelter-in-place order and many VCs scrambling to adjust their processes to an all-remote world, we saw pitch deck interest drop 11.6% when compared to the same week in 2019. While there has been a drop in interest so far, there is still a lot of activity, and VCs seem to still be reading pitch decks.

We will be monitoring the Pitch Deck Interest Metric in the coming weeks, but if you’re an early-stage startup and are in the middle of your fundraise, or are about to fundraise, there are some things you can do to help insure your startup is ready for funding before you meet with any (more) investors.

time spent reading pitch decks

The Pitch Deck Interest Metric declined 11.6% compared to the same week in 2019

Expectations have shifted and will continue to do so

If you were about to kick off a fundraising round, you should have been prepared to contact 50 or more investors, have 20-30 meetings and spend somewhere around 20 weeks before you signed your term sheet. That’s a lot of time and energy to invest, especially when the economy is poised for a downturn and you’re most likely needed in other parts of your business.

If you’ve already started your round and are wondering if you should push through, I’ve written a piece on knowing when to quit and recalibrate versus when to push through (Extra Crunch membership required).

Many factors play into navigating a successful fundraising round, and the expectations of investors are constantly changing — specifically when it comes to the pre-seed round.

Investors are now looking for market-ready products and want to see pitch decks that feature the content they’re expecting. We expect to see this focus intensify over the coming months as VCs have more time to spend not just to review pitch decks, but on due diligence for companies in which they plan to invest. Our new report outlines advice for pre-seed startups that are looking to adjust their fundraising strategy.

Focus on an MVP, not just a great PowerPoint

Our analysis reveals a shift in the level of readiness required by institutional investment to receive pre-seed funding. In the past, pre-seed startups could get by with just an MVPP (Minimum Viable PowerPoint). But now, investors are placing their bets on pre-seed startups that have already entered the market and developed an alpha, beta or shipping product.

In fact, 92% of companies with successful pitch decks had either an alpha, beta or shipping product, where only 68% of companies with unsuccessful pitch decks presented the same type of product readiness.

stage of product development mvp vs mvpp

As the economy moves closer to a downturn we can expect VCs to be more cautious with their investments. The current data already shows a preference for companies that have live products; it’s worth the time and effort to be product-ready coming into a pre-seed round or if you’re a startup ready to tackle the round again with a fresh perspective.

Rethink your deck

That said, even if you do have an MVP, rethinking your pitch deck may be something else to consider. Here’s a good test. Using your pitch deck, spend three to four minutes (that’s all the time you’ll get from a VC) to pitch your business to a friend or family member who knows nothing about your business. Afterward, ask them for a one-sentence description of your company. If they’re not clearly describing what your company does and the problem it’s trying to solve, you probably need to rethink your pitch deck.

According to our recent report, a “less is more” attitude toward creating a compelling pitch deck for meetings could mean more success in pre-seed fundraising.

Your pitch deck will be your main calling card right now. As community events are being replaced with online gatherings during the COVID-19 pandemic, we can expect to see less one-to-one engagement at these events. So pitching a VC in person is not likely to happen anytime soon. Whether you’re sending them a cold email, or getting a warm intro from a portfolio company, you’re going to need to lead with your pitch deck.

Despite the product taking a more prominent role in the fundraising round, the pitch deck is still a focal point and should be tailored to tell your story in the most effective way, as investors are spending less time evaluating them. On average, investors are spending just 3 minutes and 21 seconds on the pitch deck and the average deck is just 20 slides.

If you are in the process of reevaluating your pitch deck, it could be helpful to make sure your slides feature the right content in the right order. Investors spend nearly 50% more time on the product slides in successful pitch decks and over 18% longer on the business model in unsuccessful pitch decks. Additionally, investors spent more time on solution slides in successful decks than unsuccessful decks.

time spent on successful decks

It’s a numbers game… to a certain extent

Another area that could benefit from reevaluation is the number of investors contacted, meetings held and the number of weeks spent in a funding round. Generally speaking, the average amount of investors contacted for successful fundraising rounds is 56, resulting in 26 meetings. On average, successful pre-seed startups will spend 20.5 weeks on fundraising.

When it comes to fundraising, there are diminishing returns for investor outreach. You shouldn’t need to send your deck to more than 60-70 investors and have more than 20-30 meetings. If you’re doing more than that, the ROI on your time just isn’t worth it. Because the current crisis is affecting VCs’ willingness to invest, you’re better off finding a small list of investors who are active and targeting your pitch to them. If you’ve reached out to more than 70 investors, but you’re still faced with a wall of “nos” you’re better off pausing your fundraising and addressing the feedback you’ve received so far. For more on when you should quit and reevaluate versus push through you can read my article here (Extra Crunch membership required).

how long does a pre seed round take

Another area pre-seed startups should evaluate is the number of founders of a company. Our data shows investors still prefer teams of two-three founders, though our data shows that being a solo founder is preferable to having too many founders. For teams of five founders, they averaged earning $195,085 while founding teams of three garnered $511,522.

This may be the right time to find a co-founder. With many people working from home or out of work, this could be the opportunity to take your idea and bring on the technical founder you need. There are online groups and events popping up everywhere in response to social distancing. If you’re worried being a solo founder is going to hold you back, you may want to invest time in those new communities.

meetings and amount raised

Get some perspective

For many startups, especially if you are not in Silicon Valley where a substantial amount of funding happens, the process of fundraising can be very opaque. DocSend’s purpose in analyzing this data is to bring some transparency to the process. This in turn provides perspective.

But what founders should do, if they haven’t done so already, is to get some additional perspective. Talk to experts outside your immediate circle of influence. Don’t have a mentor or advisors? Find them. Get a different take on your product idea or the market conditions. Especially now that community events are going virtual, location doesn’t have to hold you back from joining the startup community and finding people to offer feedback on your product or company.

Fundraising is both an art and science. Combining the insights from our data with the benefit of your own community can help you get back on your feet and pitching your company with hopefully a better outcome.

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