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The devastating effects of coronavirus on the public markets also is being felt in the venture capital market, as tech investors tell their portfolio companies to reevaluate their balance sheets.
“Raising money is never easy for VC funds or for VC-backed companies,” said Jon Medved, founder and CEO of the investment platform OurCrowd. “However, we just went in a matter of weeks from one of the best fundraising environments to one of the most difficult.”
While some companies have seen large rounds since the US began to significantly feel the effects of the virus — San Francisco-based cloud infrastructure automation HashiCorp announced a USD 175m Series E raise at a USD 5.1bn valuation on 17 March – investors say a slowdown in investing is inevitable.
Mergermarket data shows there were 31 venture capital financing between 2 March and 9 March in Technology Media Telecom (TMT) startups, but only 15 such deals between 10 March and 17 March.
“Coronavirus is already impacting the VC market and there will be a clear slowdown on funding at least during the next two quarters as VCs focus on keeping their portfolios running,” said Astorre Modena, managing partner at Israel-based Terra Ventures.
After those two quarters, the question of when investing will pick up again will depend on the depth of the crisis, though it will take time for funding to reach the record levels prior to the crisis, said Modena.
Jeff Richards, managing partner at GGV Capital in Menlo Park, California, said there will no doubt be fewer investment checks written in the next several weeks, and this crisis gives companies a chance to reset and recalibrate. While the top 5% to 15% of companies will not have a problem weathering this storm, the crisis still gives all companies a good opportunity to review their business, he added.
Technology already had been seeing a fundamental shift in investing from the consumer side to the enterprise side for the last nine months — partly due to factors such as the issues Softbank and WeWork have faced, he said. That trend toward enterprise will continue with the crisis, said Richards.