Friday Letter: Venture community riding out covid-19 impact … for now

As the venture community takes steps to minimize the spread of the disease, does the 2008 recession offer an indication of how coronavirus will impact VC in 2020?

Here’s the quote of the week, from a VC who’s seeking a possible hard-cap of $50 million for an inaugural fund that features two partners: “I was already hoping to do a first pitch [with an LP] via video and now this is a perfect excuse.”

The excuse the VC was referencing is the covid-19 pandemic, which is forcing corporations and the venture community to use videoconferencing, ban travel, cancel conferences and allow employees to work from home.

As we move into month three of the worldwide outbreak, the stock markets and the global economy have encountered a lot of turbulence. We may not fully know for months to what extent covid-19 will impact dealflow, investing, exits and fundraising in the VC world.

From the conversations I’ve had this past week, the GPs and the LPs say Covid-19 is front and center on everyone’s minds. Everyone is monitoring the situation and taking steps to minimize the spread of the virus. But most seem confident they can ride out the storm. Everyone just has to get used to all the Zoom calls, another VC told me.

The emerging manager VC who was looking to do a video pitch also said: “I have not pitched many people, but the ones I am talking to right now haven’t shown any signs of change for covid-19 so far.”

Of course, that’s not the case in the sports world, or in travel and tourism, or for small businesses. But what can we expect in venture?

Tomasz Tunguz of Redpoint Ventures discusses the impact on venture in his blog post on Thursday in which he compares the coronavirus to the 2008 recession. He notes that investment dollars dropped and then two quarters later steadied before rising again to surpass the 2008 levels two years later.

He also pointed out that it was business as usual across the early fundraising rounds, by deal count, as VCs continued to pour money into the same number of rounds. But companies burned less and grew slower.

A virus is not exactly comparable to a Lehman Brothers collapse, I know, but his point is that investors can look to 2008 and how the venture market saw depressed valuations for 18-24 months as an indicator of how covid-19 could impact activities today.

What to expect from VCJ

So how does that influence what we’re reporting on at Venture Capital Journal? Certainly, coverage of covid-19’s impact on VC will continue here. We’re looking at how it impacts deals and fundraising and what extreme or unusual measures firms are taking to address the ongoing situation.

We are always looking at the long-term strategies and trends in the venture community and that won’t change with this. In fact, many of the stories that we are planning to post in the weeks and months ahead have been in the works for awhile. We will just need to add covid-19 as another layer to our ongoing reporting.

I would love to hear from you about your thoughts on covid-19 and how your firms are dealing with it and if you anticipate it adversely impacting venture capital.

You can reach us on our contact page. You can also leave us an anonymous tip on our website by clicking here.