With all that has changed after this health crisis, it’s relevant to revisit the venture capital industry to understand how it’s changed. While in the short-term all VCs are doing a quick evaluation of their portfolio companies and making adjustments as needed, the long-term outlook for venture capital investing is still positive.
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What Is The Future Of Venture Capital Post-Crisis?
1. CFO Network
I write about topics that concern CEOs, CFOs, and boards.
What Is The Future Of Venture Capital
Post-Crisis?
2,558 views | Apr 26, 2020, 09:00am EDT
Suzy Taherian Contributor
With all that has changed after this health crisis, it’s relevant to revisit the venture capital
industry to understand how it’s changed. While in the short-term all VCs are doing a quick
evaluation of their portfolio companies and making adjustments as needed, the long-term
outlook for venture capital investing is still positive.
Venture capital investing has a long-term horizon and beyond the current turbulence, the outlook is ... [+] SUZY TAHERIAN
The following is an interview with George Bischof, Managing Director of Meritech Capital
Partners, a late-stage venture capital firm with over $4 billion under management. Bischof
and Meritech were early investors in Facebook, Mulesoft, Netsuite, and Salesforce.com.
Suzy Taherian: Will VCs invest closer to home due to heightened real and perceived risk
internationally and difficulty to travel for due diligence/board meetings?
2. George Bischof: Innovation is taking place in so many regions right now. As a result, the
VC industry has been seeing more and more interesting opportunities outside of the Bay
Area and other traditional hot spots. Post COVID, I believe this trend will still
continue. The best companies will continue to draw interest regardless of where they are
located. There may be a funding pause during social distancing periods but long term I'm
a buyer of innovation being more distributed. Investors will always get on planes to meet
strong talent and technologies like video conferencing facilitate parts of the due diligence
process.
Taherian: Will VCs reprioritize investing with more emphasis on healthcare companies?
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Bischof: Right now, COVID is affecting everybody. Companies focused on travel,
entertainment and SMBs tend to be feeling the downturn in an acute manner. On the
other hand, we have pockets of our portfolio that are benefitting from the changes taking
place such as online services (i.e Roblox, Nextdoor, GoFundMe) and software that enables
remote work. Healthcare is another area where certain areas are in greater demand. This
pandemic has highlighted the need for improvement in many areas of the healthcare field
such as cloud services and telemedicine so I think healthcare will be an area that gains
interest. Overall though, investing in private companies requires a long term horizon. The
pandemic will eventually be behind us, and though our experience today will affect our
new normal going forward, many of the best entrepreneurs are looking beyond today's
most visible problems. We remain bullish on the tech sector as it is still early days in the
mainstream adoption of cloud-based technologies.
Taherian: Will investments in technology that enables virtual activities (sales,
entertainment, work collaboration, finance, etc) become even more attractive as more
work goes online and stays online?
Bischof: People will eventually return to work and welcome the opportunity to socialize
and meet face to face again. Having said this, many people are right now learning how
Overall though, investing in private companies requires
a long term horizon... We remain bullish on the tech
sector
3. effective they can be at home with video conferencing, messaging services and other
collaboration based applications. There will be a realization that not every event or
meeting requires travel or a long commute. Virtual activities and remote services have
now been tested at scale and should remain a great option going forward even when it is
not out of necessity.
Taherian: Will VCs pause to re-evaluate investment strategies for a few weeks but be
back aggressively after that as valuations have taken a hit and many opportunities are now
at attractive pricing?
Bischof: 2020 venture investing levels will drop from prior year activity. There is a
tremendous amount of uncertainty right now. VCs are working with their portfolio
companies to help them navigate these times. Everyone wants to turn over more cards to
see how long and how deeply the economy is affected. While valuations have declined,
pricing in the private markets often typically takes a few quarters to re-set. Also, only the
companies that really need the capital tend to raise now. All this leads to a pause. After
this, I have no doubt that the industry will rebound in a strong fashion. There are so many
opportunities to innovate and there is a significant amount of capital in the system looking
to invest.
Taherian: Will LPs also re-evaluate investment? Some have taken a hit in the public
equity markets; Some may need to use cash to shore up other struggling investments. Will
investors value liquidity and covid-19 resilient strategies?
Bischof: In downturns the value of public portfolios decline first and many LPs find
themselves over allocated to alternative assets such as venture capital and private
equity. This can moderate VC industry funding for a few years which tends to lead to
strong eventual returns for the asset class. There are a number of reasons why an
increasing percentage of the overall total value created over the past several years has
come from the private markets. The private markets should continue to be attractive
relative to the public markets.
Taherian: Necessity is mother of invention; So will the crisis spark innovation with many
new entrepreneurs offering solutions for post-covid problems? Will there be a boom in
new startups?
2020 venture investing levels will drop from prior year
activity. There is a tremendous amount of uncertainty
right now
4. Bischof: We find when there is a risk environment that there are probably fewer
entrepreneurs starting companies. The comfort of having a steady job and salary from a
larger company is valued by many during these times. I will say that we have seen higher
levels of quality entrepreneurship during the tougher cycles. These founders are true
entrepreneurs. They are passionate about solving problems and innovating and are not
doing it to be trendy or opportunistic. Historically, amazing companies are built in these
times. There tend to be fewer competitors in a space and money is not as free so
entrepreneurs build companies with efficient business models.
Taherian: Will some startup models have a tough time in next 18 months? For example,
sharing economy will be challenged. It will be some time before people feel comfortable
having a stranger stay at their house or sharing a car with other strangers.
Bischof: Sadly, several sectors will be affected in more adverse ways than others. It will
be interesting to watch how people's behavior changes when we resume our normal
lives. The 'new normal' may see some residual impact from what we are living through
today. Assuming there is a vaccine down the road though I'd bet that the attractiveness of
what drew people to Uber and Airbnb will bring them back in large numbers.
Taherian: Will there be a bit of a shakeout in VC world? Will the crisis will cause some
filtering with some poorer performer folding?
Bischof: It is a performance based industry and in prolonged downturns in particular
there is always some fall out in the industry. I'd be lying if I did not confess there is some
luck around timing. If you are a new early stage fund with only two vintage funds—say
2017 and 2019— it will be challenging to show returns for the next fund.
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we have seen higher levels of quality entrepreneurship
during the tougher cycles. These founders are true
entrepreneurs.
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![CFO Network
I write about topics that concern CEOs, CFOs, and boards.
What Is The Future Of Venture Capital
Post-Crisis?
2,558 views | Apr 26, 2020, 09:00am EDT
Suzy Taherian Contributor
With all that has changed after this health crisis, it’s relevant to revisit the venture capital
industry to understand how it’s changed. While in the short-term all VCs are doing a quick
evaluation of their portfolio companies and making adjustments as needed, the long-term
outlook for venture capital investing is still positive.
Venture capital investing has a long-term horizon and beyond the current turbulence, the outlook is ... [+] SUZY TAHERIAN
The following is an interview with George Bischof, Managing Director of Meritech Capital
Partners, a late-stage venture capital firm with over $4 billion under management. Bischof
and Meritech were early investors in Facebook, Mulesoft, Netsuite, and Salesforce.com.
Suzy Taherian: Will VCs invest closer to home due to heightened real and perceived risk
internationally and difficulty to travel for due diligence/board meetings?](https://image.slidesharecdn.com/partnersadmin-scott-tominagaslideshareupdate2may2020batch1-celeste-200521211230/85/What-Is-The-Future-Of-Venture-Capital-Post-Crisis-1-320.jpg)
