One would think it’s a given that investment strategies would change in the strange times we find ourselves. With the economy staggering and so much general uncertainty, it seems caution would be the watchword of the day, especially in the enterprise. But enterprise investors aren’t necessarily looking at what’s going on right now.
As startups make their way into the enterprise, they often grow from a single product to a platform offering, which means such investments tend to be a long haul that can take a decade or longer to mature and exit or IPO. The bigger the approach, the longer the sales cycle, so even though sales motion could be stalling now, it doesn’t mean VCs are just giving up on these types of investments.
Savvy investors understand that this is going to be a long game, and the current situation driven by a worldwide pandemic won’t necessarily change their approach significantly.
We asked a number of enterprise investors if they have changed their approach in light of the pandemic and its knock-on economic impacts, how the current environment has changed their relationship with existing portfolio clients and how well those clients are coping with the new reality.
- Theresia Gouw, Acrew Capital
- Diane Fraiman, Voyager Capital
- Casey Aylward, Costanoa Ventures
- Hope Cochran, Madrona Venture Group
- Leyla Seka, Operator Collective
- Max Gazor, CRV
- Navin Chaddha, Mayfield
- Matt Murphy, Menlo Venture Capital
- Soma Somasegar, Madrona Venture Group
- Jon Lehr, Work-Bench
- Steve Herrod, General Catalyst
- Jai Das, Sapphire Ventures
- Ed Sim, Boldstart Ventures
- Martin Casado, Andreessen Horowitz
- Vas Natarajan, Accel
- Dharmesh Thakker, Battery Ventures
[Editor’s note: Our prior enterprise survey failed to include any responses from female VCs and did not meet TechCrunch’s standards for diversity and inclusion. We regret the error.]
Theresia Gouw & Vishal Lugani, Acrew Capital
Note: These responses came from both partners.
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
We remain committed to our five core thesis areas: security & infrastructure modernized, financial services rebuilt, work reimagined, data interconnected, and community activated. We break out each of our thesis areas into anywhere from 10-20 sub-sectors.
We have been continuously reprioritizing which sub-sectors will likely see business growth as well as opportunities to make a positive difference to a world grappling with COVID. There are still many unknowns and we closely watch company formation and funding to see where there might be particular concentration of entrepreneurial activity, which we take to be a positive sign that a market is robust and ready for significant investment.
Within enterprise software, we’ve unsurprisingly seen an acceleration in enterprise demand for communication and collaboration software. We’ve historically maintained a thesis that enterprise communication is an untapped, shadow set of data about workplace productivity and knowledge. With swaths of workers working remotely, capturing insights from these conversations provides a significant opportunity. This applies to industry verticals as much as it applies to functional software that sells across industries and focuses on a particular type of communication. We believe the key is that both employees and employers find these insights to be beneficial.
Lastly, we’ve also seen a growth in software and data that help enterprises navigate disruptions in supply, demand, or other aspects of their business.
How has COVID-19 affected the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
We’ve been deeply impressed by the adaptability that our portfolio companies and their teams have demonstrated over the past few months. After going through the initial exercise of making sure our companies felt good about the runway they had going into what could prove to be a challenging next one to two years, we engaged with our founders in prioritization exercises around product and go-to-market strategy.
A common theme we found when joining our founders for these strategy sessions was that many pulled forward and prioritized mid- to long-term projects where the product features might better fit the needs of their customers during these times. One such example in our portfolio is Petabyte’s (whose product is called Rhapsody) accelerated development of its software capabilities that enable veterinarians to provide telehealth services. Rhapsody has also incorporated key features that enable a contactless experience when telehealth isn’t sufficient. These include functionality that enables customers to check-in (virtual waiting room), sign documents, and make payments from the comfort and safety of their car when bringing their pet (the patient!) to the vet for an in-person check-up.
Another such example would be PredictHQ, which provides demand intelligence to enterprises in travel, hospitality, logistics, CPG, and retail, all sectors who saw significant change (either positive or negative) in the demand for their products and services. PredictHQ has the most robust global dataset on real-world events. Pandemics and all the ensuing restrictions and, then, loosening of restrictions fall within the category of real-world events. The company, which also has multiple global offices, was able to incorporate the dynamic COVID government responses on a hyperlocal basis, by geography, and equip its customers (e.g., Domino’s, Qantas, and First Data) with up to date insights that would help with demand planning and forecasting as well as understanding staffing needs.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
We tend towards being present and active with all Acrew companies during all times, and particularly during challenging times like now. As a rule of thumb, we want every portfolio company to feel like they are part of the Acrew team (thus the name of our firm – we are part of a “Crew”). And as such we want founders to feel like they aren’t limited to having a line to only one or two of our investors, but rather they have access to our full team. This has continued in the face of the pandemic and, if anything, we’re probably on average talking to our founders more frequently than pre-COVID.
In regards to giving advice, our general philosophy on working with our portfolio companies is that the conversation should always be bi-directional. The teams at our portfolio companies know best the problems they are looking to solve. Where we can help is by providing the market perspective that we earn from being thesis focused and looking across the early-stage landscape within our focus areas. And sometimes we see parallels or learnings across companies and the market more generally, things that founders might not catch because they are so close to things on a day-to-day basis. We don’t want to rely on formal meetings or structures to “give advice.” We hope that our interactions with our founders are frequent and not just formal in nature.
Diane Fraiman, Voyager Capital
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
It is clear to all of us working from home, home schooling our children, spending hours on a video platform to collaborate, downloading more movies and games, and looking for ways to balance our life in this new normal that there are and should be an explosion of innovation that comes from this period. Some of this will be improvements to the current technology, and some will be totally disruptive new ways to live our lives. We are lucky in the Pacific NW to have a reputation for disruptive B2B technology in infrastructure, video enablement, communication and vertical SaaS platforms.
While there was an initial disruption to new deal flow when the shut down started, we are now seeing the deal flow pipeline return in our major markets of Oregon, Washington and British Columbia. These are companies adjusting for the new economy, focused on improving their technology and positioning, pivoting their early go to market to meet a new market environment, and evaluating their financial requirements in much more realistic ways given a need to have enough money to face some of the unknowns. We continue to look for highly disruptive companies with an eye now for innovation that will drive this new economy.
How has COVID-19 affected the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
Having 18-24 months runway of money in the bank is critical at a time where visibility into your market forecast is cloudy at best. While there are tough decisions that go along with re-planning your business to meet that requirement, we have been fortunate that the majority of our companies were not planning on raising funds until the end of 2021. Each company is in a slightly different situation.
Several of our companies have seen significant growth as a result of the pandemic and markets changing rapidly. While this also causes strain on a company to scale faster than originally planned, it is a good problem to have for strong teams. We have companies that have seen an opportunity to pivot to a new puck – they see opportunities to take their technology and solve a slightly different problem to a different economic buyer with a different go to market model.
Finally, we have companies that see an opportunity to take down a weaker or more expensive competitor when enterprises are cutting budgets. In all cases, being agile and tuned in to changing market dynamics has been the difference between stalling, holding on and/or growth in this environment.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
The majority of our founders/CEOs have not been through an economic downturn – let alone a pandemic – in their leadership experience. Therefore, they have no ‘blueprint’ for what to do in regards to ensuring both the financial and emotional stability of their organization.
The Voyager team has spent a considerable amount of time coaching and advising our portfolio companies through this time to both stabilize their business models to ensure they have enough runway for changes to their operational plans, as well as working with them on ensuring their organizations are both calm and focused through this difficult time.
Casey Aylward, Costanoa Ventures
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Especially with the pandemic, we expect to see a massive acceleration to the cloud as teams that were not prepared to work remotely are compressing this transformation in a much shorter time frame. The pandemic has added momentum to a handful of big opportunities:
- The data layer has been seriously overlooked. The rise of microservices lets developers pick and choose the best database given the needs of the service. This has led to a proliferation of data repos that multiple users or customers may have access to so managing, monitoring and securing these fragmented data sources will be key.
- We’ve also been interested in new approaches around streaming data or real-time processing. For example, we think there is an opportunity to transform application/infrastructure data-in-motion to provide more meaningful insights to DevOps or security teams. Storage-first models, more commonly used today, aren’t as useful or cost-effective as data volume increases.
- The pattern to centralize data into cloud data warehouses is creating new opportunities around DataOps and self-serve analytics.
Just as important on the technology trends, the pandemic has also accelerated how companies are thinking about their go-to-market strategy. Bottoms up or developer-led business models (like Atlassian or Twilio) have seen a lot of success in the last decade for a handful of key environmental reasons, like cloud-based delivery models, OSS code accessibility via platforms like GitHub and also the sheer rise of the number of developers (to name a few).
Companies that lead with product and depend on bottoms-up adoption will succeed in this period. Top down sales and successful rollouts are way harder to execute when folks aren’t sitting together in the same room and the IT budget has been slashed by 30%.
How has COVID-19 affected the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
The pandemic’s duration and depth of impact are currently uncertain, which makes planning incredibly challenging. Our portfolio companies have had to adjust to the new reality. After moving to working remotely, our companies ensured the safety of their employees and made sure they could do their jobs at scale in order to service existing customers.
We have advised our portfolio to gather as much data as possible and model out a handful of possible financial scenarios. This includes a worst-case scenario because no one knows how long the economy is going to be impacted.
With so much uncertainty, companies will need to treat the cash they have as a scarce resource and spend and invest only in the most critical activities. Therefore, we have worked with our portfolio to adjust and plan accordingly on their product, sales, and marketing strategies.
On the IT/engineering side, the major change caused by the pandemic is the increased usage or spikiness of usage of platforms. This has forced the need to bump up site reliability best practices, which usually develop at a certain point of maturity on an engineering team, but have been pushed forward in a remote-first world.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
We’ve been giving way more advice and much more intensively over the last 10 weeks. This is all new ground for all of our companies, and our responsibility as board and lead investors is to support and help them think through the most critical issues to survive – whether it is to talk about different scenario plans, review GTM strategy adjustments, or just be an empathetic listener.
While it depends on the stage and industry, we have encouraged our seed-stage portfolio to think about how to play offense in this environment. They’ve been opportunistic with hiring great talent that has come onto the market and experimenting more with customer engagements. Our growth and late-stage companies are more heavily impacted by the pandemic, so there have been more update calls to discuss burn rate and cutting expenses, debt financing, reductions in force versus furloughs, etc. Uncertainty makes people nervous – but having a functional and supportive board always matters, especially during tough times.
Hope Cochran, Madrona Venture Group
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Madrona focuses on early-stage companies – joining an entrepreneur on Day one and partnering with them throughout their journey. As a result, although there will be long-term implications of this pandemic, our core strategy has not changed. Our first priority in investing in new companies is the founder and team, and we are continuing to see these in our Zoom meetings with new entrepreneurs. In terms of technology – we focus on technology-driven solutions in the areas of infrastructure, ML/AI, Cloud, SaaS tools and systems for enterprise and areas where these intersect each other.
We are aware that this pandemic will bring about changes in how we work and live going forward, and it is interesting to explore new ideas that will help support that. For example, enterprise systems that support distributed work or help manage the companies’ most important asset — Cash!
In the areas of consumer behavior, streamlining the world of online payments or e-commerce as we interact with merchants in an increasing touchless way. These are all areas that were ready for disruption and this event has brought it on sooner.
How has COVID-19 affected the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
No one could have anticipated this situation and we immediately jumped in to work with our entrepreneurs in a variety of different ways. The first focus was the health of their employees, both physically and mentally, as they transitioned to working from home and new family dynamics.
From a business planning perspectives, reforecasting was urgent as they looked at their customers’ viability and their ability to continue to sell in certain channels in this environment. The impact of this revenue uncertainty led the companies to take a hard look at their overall cash position and make sure they were positioned for economic risk – often leading to difficult choices or evaluating ways to have access to more capital.
Then lastly, as this period continues it is important to address how to make it sustainable – this is becoming a marathon, not a sprint. So how do you continue to run a workforce productively in this environment – from on-boarding new employees, starting new projects, etc. It is a new normal, and we are sharing best practices across our companies, spending a tremendous amount of time with them in regards to their health – both as individuals and as a company.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
We have always been involved in our companies, but in a crisis, that is when you really roll up your sleeves! Individually we all worked with our companies to ensure their health, help them reforecast and evaluate steps forward.
As a firm we worked to systematically share best practices and ideas across our companies. We did this through Webinars on topics such as reforecasting, being productive in a distributed environment and sharing new regulations. In addition, our Venture Growth Team created the Back to Work Toolkit for our companies, which we open sourced and has become a resource for companies across the country.
And we continue to discuss in depth with our companies and with each other the decisions that have to be made daily to continue to build successful companies, and how to navigate through this time. When startup leaders choose investors, they choose us not just for the funds, but for the help thinking through big decisions and turning points. We are in the midst of all that now and though conversations have at times been hard, this is where true leaders are made.
Leyla Seka, Operator Collective
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Our core thesis hasn’t changed. Operator Collective invests primarily in enterprise b2b software and tech, a sector that’s accelerating right now as more and more companies realize the need for on-demand tools. We look for founders who are humble, lifelong learners running companies where we can help the leadership teams grow and scale. We’re continuing to make investments along those same lines.
How has COVID-19 affected the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
A big part of our value proposition is that we have 100+ operator LPs who’ve built and scaled some of the most successful companies in the world ready to engage with our portfolio companies. Before COVID-19 our LPs were actively involved – and now that we’re in it, our portfolio companies have all these amazing resources ready to offer advice to help them get through this intact. It’s been a nice validation of our thesis, honestly.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
We give about the same amount of advice. We help our portfolio companies run operationally sound businesses – they’ve always felt comfortable coming to us with questions, and they continue to do so at about the same pace. The shift has been in the type of questions we’re seeing. Now we’re helping our portfolio companies with scenario planning and re-targeting in the face of COVID-19, including how to plan for an 18-24 month runway for their businesses while continuing to stay focused on the customer.
Max Gazor, CRV
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
The pandemic has shed light on the classic vitamin vs. painkiller debate in software. The software companies with strong product/market fit solving real needs saw very little impact to their quarters and were remarkably resilient during this period. This seems to be more top of mind than ever.
Capital efficiency has also come up much more frequently in pitches. We are more frequently seeing companies headline the fact that they’ve only burned so much capital to get to certain milestones. A year ago, the headline was growth. Now, the subtext is efficiency of growth.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
It’s obvious to state but somehow overlooked that each startup is different and so as a partnership we’ve been spending individual time with each, rather than offering blanket advice. There was a period of a couple of weeks early on during the pandemic where having visibility across the boards of hundreds of companies across our portfolio was tremendously helpful to our companies.
As a firm, CRV is built on strong partner communication and this helped us to keep one another apprised in near real-time. It allowed us to learn as a team and be better board members, separating reality vs. fear when it came to things such as sales pipeline impact and headcount reductions. The more frequent founder/VC communications during the pandemic has made many of these relationships even stronger.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
We support our founders and CEOs to operate their companies, so less about advice but more about information exchange. The pandemic did create more frequent communication and dialogue to help navigate the fog of uncertainty that fell on every company. It allowed us to have great discussions and help our companies to get through a very stressful time.
Navin Chaddha, Mayfield
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
On the enterprise side, it has not changed our POV that much as we still believe that drivers such as cloud-native, AI enabled, edge computing, cybersecurity, robotics automation and remote work will thrive. We have elevated our focus on biology as technology which will create companies that improve human and planetary health.
With remote work culture accelerating the rise of ecommerce, we plan to invest in trusted commerce platforms. Some examples from our portfolio that are thriving include fashion marketplace Poshmark’s inventory-less model and Grove Collaborative’s subscription commerce platform for sustainable products. We are looking for more kinds of companies like these.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
We have worked hard to ensure that our companies have two years of runway and that they are taking the necessary steps to right size their workforce and have realistic revenue expectations and adjust their cost structure accordingly. We have asked them to focus on renewals and upsells to existing customers first before they focus on acquiring new customers. Having navigated prior downturns, it helps that we have a playbook to offer entrepreneurs, especially first time CEOs, who have never seen tough times.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
We are definitely spending more time with our teams, both because we want to make sure to over communicate during uncertain times, and also because you have to work harder to make sure the remote mode delivers as much accessibility as the in-person mode used to.
Matt Murphy, Menlo Venture Capital
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Ideally the company would have capital efficient growth and be performing even better in this environment. Ideally… as you’d have found a true outlier, but they exist! One of the reasons on capital efficiency is follow-on capital may be harder to get and it’s expensive to use dollars to scale sales and be wrong in an environment where things may be more bought than sold; whereas if the company has an efficient sales model that you can see working now, you’ll be pretty sure it has a lot of legs to it both in this environment and after.
Of course finding companies whose strategies have been accelerated by 2-3 years due to accelerating a move to digital or forcing a new way of doing things that won’t go back to the old when this is over is amazing too (e.g. Hover moving analog measurements of homes to iPhones and digital 3D models).
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
Almost all companies have been hit and have had to adjust their yearly plans down by 20-50%. Most have shifted more to efficiency than growth to preserve cash until we all know more about how this situation will unfold in the coming months, and ultimately years.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
More time with portfolio companies for sure. I’d say 80-90% of time has been shifted to the portfolio vs. new venture activity, but that’s already starting to shift as most companies have adjusted and we get closer to some new normalcy.
Soma Somasegar, Madrona Venture Group
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
The first priority is to work with my existing portfolio companies to help them navigate through this period of difficulty and uncertainty. Beyond that, continuing to look for and invest in the best entrepreneurs with a potentially huge opportunity is what I look for.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
I use a simple 2X2 matrix (consumer facing companies and B2B companies on one axis; companies with < 12 months of cash runway and companies with > 12 months cash runway on the other axis) to have a simple framework to help me navigate. The focus for the last couple of months has been to help my portfolio companies transition from “secure the balance sheet” to “optimize the operating plan” mode with particular emphasis on adapting the GTM to a virtual, digital world.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
As a point in time statement, over the last couple of months it has been substantially more because of the crisis environment that every business and company is facing. I am hopeful that in the coming months and quarters, we start to look at the beginnings of the “new normal.”
Jon Lehr, Work-Bench
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Unlike some other industries, enterprise startups have been able to remain relatively resilient during today’s economic shifts. Fortune 500 companies need these new technologies and capabilities more than ever, given that legacy tech incumbents are expensive and can’t meet most of their needs. This is something I experienced firsthand at Morgan Stanley IT at the tail end of the 2008 financial crisis, which led to us adopting solutions from a wave of enterprise startups.
Given this context, we haven’t changed our approach of evaluating long-term theses and trying to find the best teams solving the Fortune 500 problems we identify. Our diligence has always been focused on corporate feedback and during this time, we are still hearing demand from our Fortune 500 network. This means we are still able to make meaningful customer introductions to our startups, which will carry a lot of weight in surviving this storm.
What’s changed, of course, is that we can’t meet founders in person. So beyond companies pitching us over Zoom, we’re exploring ways to get to know founders as people and better understand their backgrounds and motivations, without the ability to get lunch or dinner. This is definitely a challenge, but we’re adapting and experimenting with things like a virtual lunch or drinks over Zoom where it’s not a formal pitch setting.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
We’re in a fortunate position where we’re seeing tailwinds for many of our companies.
FireHydrant’s incident response platform is being used by household names who are helping consumers weather this pandemic because service reliability is more important than ever.
Spring Health was already growing because of mental health issues in our country, and unfortunately COVID-19 has exacerbated the problem, so their precision mental health benefit for Fortune 500 employees is seeing increased demand.
Catalyst’s modern platform for Customer Success is needed more than ever as companies scramble to retain existing customers while growth will be hard for now.
Arthur is seeing accelerated interest in their model-monitoring solution given the heterogeneous ML environments in Fortune 500 companies and the increased scrutiny for what’s operating in production given the rapidly changing world, and therefore underlying assumptions in models, right now.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
Right now we’re spending about 70% of our time supporting our current portfolio companies to navigate this storm. Even in normal times, we’re hands-on investors specifically when it comes to supporting hiring, sales and GTM strategy (making customer introductions, etc.), but there’s a lot more to deal with right now.
Now, it’s more important than ever for companies to share and learn best tactics from one another. We’ve ramped up a Weathering the Storm: 2008 & Now Webinar series with startup CEOs, sales leaders, and Wall Street executives as well as continued our monthly NY Enterprise Tech Meetup, Corporate Roundtables and Enterprise Playbook Lunches via Zoom. One major benefit of expanding our events online is that we can reach new audiences beyond NYC, including those in Canada and Europe.
I think good investors are proactively checking in on their founders as human beings, in addition to being there when they ask questions. The reality is that we have a global health pandemic and lots of economic uncertainty, so these founders have to juggle their families, their companies, their customers, and their investors. It’s quite a load. In addition to the typical support we offer our founders (i.e. on the hiring, GTM and sales front), we also make sure to have “non-agenda” check-ins and use that time as a listening ear to make sure they’re handling the load okay and provide support where most needed.
Steve Herrod, General Catalyst
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Obviously the companies should execute on a strong view of what the future of the enterprise looks like. I also am looking for them to be aggressive and opinionated, but also patient and open to learning more as the pandemic plays out. It’s particularly difficult to know what the world will look like as we get through this, so being flexible is more critical than ever.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
The pandemic impacts everyone, and we’re putting substantial efforts into helping our enterprise startups navigate through this crisis. They’re all dealing with lots of uncertainty: Which of their customers are going to be in trouble and looking to spend less?
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
Definitely far more these days – it’s probably moved from 60% of my time to 80% of my time over the last two months. And hopefully it’s all proving to be helpful! I’ve personally led groups though a number of very tricky crises and want to be a steady hand and helpful counselor as we navigate through this one.
Jai Das, Sapphire Ventures
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Our mission hasn’t changed. We are actively investing in software companies we believe could be companies of consequence.
We have a team of experienced investors who have been through multiple economic cycles. We have ample capital for new and follow-on investments with our recent $1B+ capital raise. And we’re committed to making new investments with plans to maintain our investment pace of 10-12 new companies annually. In the past month, we’ve announced investments in CircleCI, Podium and Adverity.
Simply put, we’re still looking for businesses with awesome teams that are growing fast with great sales efficiencies.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
We primarily invest in B2B companies, which haven’t been as dramatically impacted as businesses like restaurants, retailers, airline companies and hotels. But we recognize these are unusual times and that it won’t be business as usual for our portfolio companies for a little while. That’s why, since the onset of the pandemic, our Portfolio Growth team has pivoted to support our portfolio companies across talent, business development, marketing and capital markets in new ways.
The sole purpose of our Portfolio Growth team is to help portfolio companies scale and reach their full potential by facilitating introductions to customers and partners, helping identify and recruit talent, and developing operational efficiencies. Over the past two months, the team has shifted gears, spending a lot of time with the CEOs and various functional leaders (CHROs, CIOs, CROs and CMOs) at our portfolio companies to offer support, share insights and provide guidance wherever possible.
For example, we’ve hosted numerous roundtable discussions with leaders at these companies and industry leaders to share best practices and learn from one another, and have developed playbooks and content for different teams to use.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
We recognize these are uneasy and fluid times, so our top priority is to make sure our portfolio feels supported. We’ve been spending a lot of time with the majority of our startups and will continue that motion until we’re on the other side of the pandemic.
Ed Sim, Boldstart Ventures
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Our investment approach has not changed in the least. I’ve been through a few of these, and while important to acknowledge the world we live in, it is also important to not chase perceived new “opportunities.” Many of our infrastructure investments are pre-product and will take 12-18 months to bake and build so hopefully these will emerge when we emerge from this crisis into a new world. The Fortune 500 is only accelerating their move to the cloud which will give companies in our areas of focus even more opportunity.
More important in this era is incredible time to value which means product-led growth companies where developers or business users can easily try before they buy. Land and expand models with incredible ROI will trump everything else. Top-down models with large ticket sales and on-premise handholding will be harder to get done.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
Once again, I see an acceleration of what’s already been started. Companies need to focus on balanced growth and not growth at all costs. Operational and sales efficiency matters more than ever and those who get their house in order will be richly rewarded in the future.
What this means is that operationally many companies had to adjust their aggressive growth plans for the year and think “how long will my cash last.” Prior crises have shown that those who can make it to the other side can emerge even stronger. Those who sold top down with long sales cycles have sped up their bottom-up product plans and rethought how to create some land and expand opportunities.
Specifically here is some of thinking we shared with our investors from a letter we wrote mid-March:
Cash runway: Starting March 3, we systematically reviewed every portfolio company and broke them out into 3 buckets: pre-product, product market fit, and scaling. While there is no one solution for each company, we have stressed that this will last longer than any of us realize and that cash is king.
We’ve also advised and worked with each founder to reforecast their numbers and recalibrate their expenses to extend runway by 2-3 quarters at a minimum or even 4 quarters if need be. Each company is in a different spot so rest assured that we’ve been through a few of these cycles before and are diligently working through this.
Product: Most of our investments are in pre-product companies so they are insulated for next 3-4 quarters and it’s as good a time as any to be heads down building and optimizing product. For those that have more of a top-down enterprise sales model, many are retooling their product to have more of a “frictionless” bottoms-up experience that will be ready for more of a remote-first world.
Next rounds of funding: Series A rounds will clearly require more evidence of product market fit so we are working closely with our portfolio to ensure they have the right milestones in place and runway to realize their goals.
Later-stage companies: Current portfolio companies A, B, C, and D are well capitalized as many raised preemptive rounds of funding. We are working closely with the founders to adjust to the new normal, understand that their current valuations clearly are not relevant, that cash preservation and balanced growth are key, and where appropriate they should be aggressive in hiring key executive talent or making select acquisitions in this environment. As JFK once said, “When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger and the other represents opportunity.”
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
No change for us as we’ve always been actively working closely with our founders and portfolio companies.
Martin Casado, Andreessen Horowitz
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Not really.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
We’re just starting to understand that. I lived through 2008 with my startup so am drawing on that experience with basic guidance such as focus on cash. But generally I think everyone is trying to understand the long term impacts. And it’s a bit too soon to know.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
Definitely more.
Vas Natarajan, Accel
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
Enterprise startups will have to find different ways of thriving in a post-COVID environment. We put a big premium on those that are cultivating community (think Ironclad and its network of general counsels, or InVision and the design community), virtualizing customer development via webinars or Zoom roundtables, or finding ways to slice off portions of their software for self-service consumption.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
Clear, well-structured documentation goes a long way in helping customers get products integrated and live. Startups with heavy field sales, complex proofs of concept and long time-to-value invite greater scrutiny as they raise rounds. It’s a great time for startups to figure out their first principles and reconfigure for efficient growth.
Dharmesh Thakker, Battery Ventures
With the pandemic having such a huge impact on the economy, how has this changed your investment approach and the types of companies you are more likely to invest in?
We’re in a new normal now, and what’s more important is adaptability and readiness to sell to enterprises in a bottoms-up, cloud-native manner. That’s not to say pedigree isn’t important. Some CEOs and founders who have great pedigrees have adapted very well to this environment. But there are many more examples of first-time CEO / founders that have led their companies through this new normal where go-to-market motions and packaging are just as important as the underlying technology, and they are just as well placed to create lasting companies.
How has COVID-19 impacted the enterprise startups in your portfolio operationally and how are you helping them navigate this landscape? How has it changed their approach?
Operationally, COVID-19 has introduced uncertainty into the next two to three quarters, and most companies, both public companies and private ones in our portfolio, are reacting by being conservative on their guidance for the rest of the year. Startups, unlike public companies, have more limited access to cash. So measured growth and capital preservation is the new norm, as opposed to aggressive growth at all costs.
Most of our companies are taking stock of two factors: Whether they sell to enterprises, as opposed to smaller businesses, and whether they do bottoms-up selling, instead of top-down sales to an executive like a CIO or CTO. Companies that sell to enterprises and have a bottoms-up model are still investing in their businesses and expect maybe a 10% to 20% reduction in sales. But if they’re selling to SMBs or have top-down, long sales cycles, they’re being more conservative and keeping more cash on hand. They’re expecting bigger revenue shortfalls than 10% to 20% and are conserving capital for the recovery period.
As far as how we’re helping companies navigate the current landscape, we’re helping some of them move up-market so they can target bigger, enterprise customers, which often requires adapting their products for the new customers. Also, we’re helping them understand that selling to existing customers and retaining them is far more important right now than going after new customers and new pipeline. Sales and customer-success functions in our companies are both focusing a lot on reducing customer churn now. In the process, some of the capacity and marketing programs for new customers for the next couple of quarters are being pared down.
At a high level, our insights at Battery come from the fact that most of the partners have seen this movie before—we’ve lived through previous economic shocks—so helping companies optimize and preserve cash is not a new thing for us. We’re also trying to help our companies by sharing first-hand feedback that we’re getting about tech spending from our network of CIOs and other tech buyers, which will help our companies plan for the future. We’re also tapping our marketing group to connect our CEOs and other portfolio executives and help them compare notes and share best practices, among other new programs.
How much has the amount of investor input in startup operations changed in the face of the pandemic? Are you giving more advice, less or about the same?
A lot more. It’s not so much advice, really, but providing data and fact patterns. As an investor, one advantage we have is that we get to see these dynamics play out across perhaps tens of companies that are selling to a similar customer base and a similar buyer.
So, we can draw conclusions from that. We often see similar trends across early- and late-stage companies, public and private, and companies in the U.S. and Europe. We can bring our portfolio executives these fact patterns and let them inform their decision-making. But this communication is probably three to five times more than what we provide in normal times. We want to be there to support our companies.