禁漫天堂

The COVID-19 pandemic has upended life as we know it, and the world of venture capital and startups is in the process of trying to figure out its new normal.

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Between how sudden everything changed and the uncertainty of when it will all end, there have been a lot of questions about what鈥檚 going on in the market, best practices for companies and if deals are still happening.

I chatted with a few VCs to learn more about the state of the market and what they鈥檙e advising their portfolio companies–especially the more mature ones–what they predict will happen in the near future, and what they鈥檙e seeing and hearing about how deals are being made.

On IPOs

Companies looking to go public will just have to wait it out. The effects of COVID-19 on the IPO market is already showing–there were just two IPOs in the past two weeks, both pharmaceutical companies and).

Malcolm Thorne, a partner at , said he expects the IPO market to slow down, and if a company wants to go public, it鈥檚 going to be very difficult.

鈥淚 think if it鈥檚 an IPO, I think people need to be patient,鈥� Thorne said 鈥淚 think there are still going to be strategic transactions that make sense during these times. The challenge is that valuations drop during these times.鈥�

So, that doesn鈥檛 mean all exit opportunities are at a standstill. There are still other exits that make sense 鈥渋n certain markets and certain applications,鈥� Thorne said.

鈥淚 do think that everything is sort of being exposed in this COVID crisis,鈥� Thorne said.
鈥淏ecause of this consumer behavior shift that鈥檚 been exposed, I think a lot of firms are going to (make a strategic bet). They don鈥檛 want to be left behind in these markets, not having a strategy, not having a solution.鈥�

On mergers and acquisitions

While the prospect of an IPO in the near future may not be likely, of agrees with Thorne, saying mergers and acquisitions are expected to continue.

鈥淚 think there鈥檚 money for exits, currently, it鈥檚 not as robust as it was a month or two ago. Especially financial sponsors, [private equity] firms will continue to be buying companies in this environment,鈥� Lerner said. 鈥淚 wouldn鈥檛 rule out exits in particular. In some ways exit might be an option for a company that doesn鈥檛 want to raise new capital at a lower valuation.鈥�

Lerner said he thinks private equity buyers will be more nimble than corporate buyers, and there will continue to be activity on the M&A side, but not the IPO side.

The shift in human behavior caused by the COVID-19 pandemic (think an increase in use of telehealth services, distance learning and video communication), will translate into more M&A activity for companies in those sectors, Thorne said.

鈥淚 think we鈥檙e going to see increased adoption of many of the things we鈥檙e utilizing in this crisis and I think that鈥檚 going to lead to increased M&A,鈥� he said.

On raising money

The general consensus for companies of all stages looking for new funding was to turn to existing investors rather than seeking out new ones. The people who know you and are (literally) more invested in you will be more likely to help you out.

For late-stage companies, the good news of the situation is that there鈥檚 a huge amount of capital allocated to the asset class, co-founder said. But the bad news is that it鈥檚 hard to make assessments of the future of a company, which makes coming up with a valuation much tougher.

鈥淭he good news is there鈥檚 a lot of dry powder, the bad news is it鈥檚 hard to determine valuation,鈥� he said.

It鈥檚 a seller鈥檚 market, not a buyer鈥檚 market right now, so for companies who need capital, they can鈥檛 be picky about where it comes from.

鈥淚f you鈥檙e in a situation where you鈥檙e going to run out of capital, take what you can get and live to see another day,鈥� Smerklo said, adding that if a company can wait, it should.

Funding slowdown?

One of the biggest questions up in the air is if there will be a funding slowdown because of the lack of in-person interaction during the pandemic. Investing in a company usually requires meeting in-person and getting to know the company and the people behind it.

鈥淚 think people will continue working on investments they鈥檝e engaged with prior to the ciris, but it鈥檚 just outside of people鈥檚 comfort zone to make an investment on a company they have not met in person,鈥� Lerner said, noting that the possible exception to this would be for companies in the telehealth, insurance tech and fintech spaces.

Investors are moving forward on deals they already had in the pipeline and done site visits for, met the team and done due diligence, he said, though there are adjustments being made on pricing and valuations.

Lerner expects that over the next couple of months new deals will slow down. But, there鈥檚 a chance that if the pandemic continues for several months, people will start making deals over Zoom.

Smerklo said he expects a funding slowdown in the second and third quarter, but that specific areas (like video communications) will be 鈥渞obust.鈥�

鈥淚 think in the short term, [the slowdown] will be pronounced but I think as the year progresses 鈥� I鈥檓 optimistic, I think activity will pick back up,鈥� he said.

There鈥檚 two ends of the spectrum, with some VC firms actively looking for new opportunities and others heavily focused on helping their portfolio companies navigate the COVID-19 situation, according to Thorne.

鈥淲e are continuing to meet with people, obviously we don鈥檛 know when this ends,鈥� Thorne said. 鈥淯ltimately we hope we meet with these people face-to-face but we鈥檙e not stopping taking new meetings just because it has to be done remotely at this point.鈥�

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