What is a VC looking to invest in these days?
Angelica A.
March 27, 2020

What is a VC looking to invest in these days?

Angelica A.
March 27, 2020
Company Forensics - Learn from the mistakes of VC-funded startups | Product Hunt

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Our current economy is certainly in times of flux with COVID-19 generating a pandemic. For some, this may mean the final blow to a lethal corporate state. For others, this situation might signify an opportunity. Whichever is the case, startups must certainly be considering what a VC is looking to invest in these days, so they can take it into consideration in their pitch deck

Due to the above, we did our research. We put some of the current knowledge out there together in an easy-to-read format for you. We hope you enjoy it!

The prior state of VC value

Back in January of this year, Forté Ventures published an article stressing the boom 2018 signified in the VC industry. In it, they analyzed 2019’s results for mild predictions into 2020. 

According to it, steady trends allowed 2018 to be a record-reaching year. And the article stresses how 2019 saw “the record-breaking VC exit value of over $250 billion, nearly 80% of which came from VC-backed IPOs.” All of a sudden, it isn’t as awful to look back to 2019 as it felt at the turn of the year, right?

Still, there’s a bit of a choppy panoramic for our prior year based on that article. Yet, more clarity comes straight out of Pitchbook’s Venture Monitor report for Q4 2019. So we’ll dig deeper into that one now, instead.

In this last cited source, the overview already accounts for an annual record with “237 mega-deals, an 11.8% gain on 2018.” Again, looking great that last year somehow. Furthermore, the report previously stated mentioned that “positive net cash flows and increased fund sizes [...] contributed to the second-highest annual total in the past decade.” How can we easily let go of the past now?

In a nutshell, early-stage deal sizes during 2019 marked levels never before seen. And valuations were still caught on the rise. 

Forté did an excellent job of recapping the state of VC value in the mentioned article. To finish it off, they reminded readers how there was an “increasing influence from non-traditional VC investors, such as sovereign wealth funds and PE funds.” And they fairly paired this with the affirmation that “emerging technologies in areas such as health tech and cybersecurity are attracting unprecedented levels of VC dealmaking.” We’re glad we get to reminisce on those now. 

Another critical element off Pitchbook’s report that Forté Ventures also summarized was how “investment into female-founded companies increased slightly from 2018, and those gains made 2019 a record year on an absolute count and value basis for deals with female-founded companies.” All of the above is important in terms of our current state of things. We wouldn’t just say it because it’s pretty.

How can we expect VC action to change?

In trying to define what a VC is looking to invest in these days, you must inevitably take into account media reports on equity prices having significantly dropped across the board. It must be every entrepreneur’s consideration to some degree, right?

Well, with the fear the coronavirus is generating, Wall Street isn’t on its best historically, to say it nicest. Service industries are closing around the globe. The price of oil is dropping. And a lift in bank reserve requirements can all daunt a person. However, it’s not all as awful as that sounds. This shock in economic terms gladly still leaves room for faith for large and long-standing businesses. 

Just as an example, Investment Europe sees how “As the largest US banks today hold over $1.3trn in common equity and $2.9trn in liquid assets, according to the FOMC, US banks have never been more capitalized to handle such measures.”

Unfortunately, the same investment intelligence source also notes that “high-yield bonds have skyrocketed as investors look to sell risk assets with heavy velocity.” Yet, this same investment expert outlines how “distressed and special situation funds have never been more capitalized to take advantage of opportunities to acquire assets at depressed prices or to be creative and efficient in accumulating assets via mid-capital structure entry points.” One fact is facing another. 

Furthermore, earnings are dropping. Capital costs are going up. And exit multiples will undoubtedly be affected as the price of assets plunge homogeneously. However, the goal here is to make more lending available to target and portfolio companies. And that can happen through various means. 

As holding on to funds will be forceful; this is where the private funding factor becomes crucial. Portfolio companies will now depend more than ever in those private funding sources. Don’t forget that.

Competition drop

With this state of matters, what a VC is looking to invest in these days is directly related to portfolio markups loosening. It also refers to the prior high activity slowing down and how that can impact short and long term performances. 

Of course, there’s room for speculation. Yet also for profitability for some. Challenging times as these foster creative business measures. And, if seeing is believing, remember how PayPal made it out of dark times as much as Airbnb. They did so amidst a crisis that would allegedly solely lead to doom. 

Adaptability to change is a big one to consider here. And VC fundraising should be able to withstand this health crisis. 

Physical contact versus online meetings

Face-to-face meetings are hard to materialize at this time. Yet, online remote gatherings are also famous as a go-to-point for now. Some VCs might indeed ask for live chats as a way to move businesses forward. Yet, that fact could still mean a setback in final signatures. Nothing is clear-cut during times of crisis. 

Now’s the time to truly learn your fundamentals on how to virtually pitch a VC. If you haven’t already, start making the best of virtual tools. We highly recommend familiarizing yourself as much as possible with our pitch decks, for example. 

Is there more you could be doing with fewer resources at this time? What a VC is looking to invest in these days also has to do with new business opportunities. Their interest can be related to those that are shaping the current and upcoming panorama. Let’s get to them a bit now.

A flourish of online activities

From Zoom to Instagram live, videoconferences are currently a way for people to stay at home. They allow us to be physically distant yet socially empathic. They’re quickly earning on popularity! 

Online education is reaching a peak at this time. More people confined to their homes are looking for ways to spend time usefully.

Online gaming and TV, movies, even overall streaming websites as entertainment are also, and quite naturally, seeing an increase in demand. So are the food and grocery businesses. Medication delivery companies with alcohol gel, soap, and other hand sanitizing products are also of the first order. 

As it stands, it’s conceivable that new products around credit will emerge. They will do so to tailor those financially impacted by the current pandemic. 

With the extension of health safety measures, many employers will also start sending people home. And this alone can easily be a fintech startup’s best opportunity to capture credit products, for example. 

We know we’ll need more

We’ll undoubtedly be producing more and more tips to face these economically trialing times. Stay tuned to our blog! 

We work hard to give you the most updated sources of analysis and news on startup businesses, VC investment, and so much more! 

For now, let’s get to work on startup business presentations to pitch online

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