When you’re a founder or a fellow VC, you’ll be asking of yourself, “Are VCs truly open for trade?” As a notoriously networked business, startups and VCs have no longer been spared the demanding situations of going faraway. VC-founder relationships are steadily multi-year endeavors, and getting the connection unsuitable will have prime stakes for each events. Whilst many people within the VC global have come to the belief that a large portion of our jobs may also be finished remotely — together with pitches, diligence, networking and occasions — difficulties proceed to rise up in fostering new deep relationships over video, and working out staff and administrative center dynamics.
In June 2020, 3 months into the pandemic, we got down to learn how VCs are running in a faraway global. We surveyed over 150 VC companies, spanning the United States, Canada, the United Kingdom, and Europe. We additionally checked out other phases (pre-seed to expansion) and funding kinds (lead vs. apply). The survey was once totally nameless and was once despatched without delay to particular person buyers by way of individuals of our staff. We set out to reply to the next questions:
- Will VCs do totally faraway offers, and beneath what instances?
- What forms of VCs are main the best way on faraway offers?
- Has the funding procedure modified, and if that is so, how?
- How has dealflow been impacted by way of COVID-19?
- Have VCs modified the best way they’re spending their time?
As we proceed to grapple with COVID-19, it’s most probably that VCs would require some adaptation in the best way we paintings for the foreseeable long run. As such, we’re sharing our findings to give a contribution to the collective studying in our business and to lend a hand us all adapt to the “new commonplace.”
Listed here are a few of our findings, consolidated throughout all geographies and deal phases. However stay scrolling down for extra key findings.
More key findings
Over the span of a full quarter, over 50% of VC firms did not do a remote deal. While this could suggest overall Q2 2020 VC funding would be dramatically lower than previous years, the data is likely to be messy. There was inevitably high deal activity relating to deals already in progress prior to COVID-19, follow-on financings in portfolio companies, unannounced deals, or financings in companies that firms have previously met in person. Given the time lag from initial discussion to deal being done, we will look to Q3 and Q4 as the real indicator of the impact of lockdown.
Many VCs are still trying to figure out what a remote deal will look like for them — but it seems like most are looking for familiarity. It was surprising that VCs haven’t reported changing their investment strategies as much as we would have thought, such as writing smaller checks, and investing at different stages, but instead are focusing on supplementing their remote diligence with their network from pre-COVID. The data suggests that most VCs are opting to favor companies they have previously met in person, doing more reference calls, and having friendly VCs already on the cap table.
We were surprised to see that more than 20% of firms have reported an increase in deal activity. But most of these VCs are follow firms, indicating that rounds may be having difficulty closing/filling the subscription amount.
The fact that the majority of VCs reported some level of decline in deal flow (between 25–50%) would suggest there is a dwindling supply of companies formally going to market — as many companies opted to extend runway, bridge to their next financing, or approach VCs where they have an existing relationship.
Overall, VCs are spending their time differently. Diligence is likely to take longer, as most firms have implemented three or more processes in order to do remote deals. “Portfolio triage” is far from over; VCs are unanimously spending more time on portfolio companies, especially at later stages.
Other interesting takeaways include:
- More than two-thirds (69%) of respondents say their firm is giving fully remote deals the green light.
- 40% of firms confirmed they have already done a fully remote deal as a result of restrictions put in place due to COVID-19.
- Early-stage firms are 11% more likely to have already closed a remote deal than later stage firms, with 47% already having done a fully remote deal.
- US firms were 18% more likely than Canadian, and 7% more likely than European firms, to have closed a remote deal.
- 49% of firms say their pipeline has held steady or increased since the start of the pandemic.
- However, deal flow starts to vary when it comes to lead versus follow-on investors. In fact, more than half (56%) of lead investors reported some level of decline in deal flow.
- US firms were 11% more likely than European or Canadian firms to have seen an increase in deals since the start of the pandemic.
- 42% of those who plan to do remote deals agree that it will require changes to their existing process.
- New processes implemented for remote deals include incorporating more reference calls, giving preference to founders and teams they’ve already met in-person prior to the pandemic, spending more time on diligence, prioritizing deals that have known firms already on the cap table, and setting a higher bar on traction/metrics.
- “Portfolio triage” is not over, with over 64% of VCs reporting spending more time on their portfolio companies. As well, given the additional processes, many VCs admit to be spending more time on diligence
Note: We classed early-stage firms as Pre-seed, Seed and Series A, while later-stage firms are Series B, C, and D+.
Alyssa Spagnolo is an Affiliate at OMERS Ventures.
This tale at first seemed on Medium.com. Copyright 2020