Earlier this week, our friends at New Zealand Trade and Enterprise (NZTE) got in touch to ask how Coronavirus is impacting investing. After emailing Amit from NZTE back, we thought it worth sharing the response here, too.
As an aside, we think NZTE do brilliant work. Many of their portfolio companies are or will be fundraising and this is another example of how they're helping.
Below are Amit's questions, and our reply:
In the short to medium term, will you still be deploying capital as normal or is there any contingency plan to focus more on existing portfolio companies that might need significant support?
We’re still investing, and expect to continue investing.
The largest impact of COVID-19 on our investment activities has been on the way we meet companies as almost all our meetings have shifted online. As a global team, we’re comfortable meeting founders via Zoom, so this isn’t unusual territory for us. But we’re aware that for many founders this may be new, and they may be anxious that this may slow any investment process. The reality is that it is likely to slow things down somewhat as the way we typically diligence opportunities will be impacted by what’s happening right now. But we will work through it, so send your founders our way!
COVID-19 is impacting our portfolio to varying degrees. We are spending lots of time with them to work through the challenges. This is BAU for us and what we love to do. The fact that it’s impacting many companies at the same time does create challenges, but we are working through them. Having had many portfolio companies in SEA experience this before the US and Australia has been helpful, as we’ve been able to learn a lot from their experience.
For companies currently raising, any view on how valuations will be impacted by the current uncertainty?
In the most general sense, uncertainty will put downward pressure on valuations. Specifically, it’s nuanced, varying by stage, sector, business model, the competitiveness of the investment process and many other factors. We expect that the most attractive investments will continue to raise at strong valuations – and consequently we expect the valuations of companies we invest in to be strong. Our time horizons after we invest in a team are extremely long, and we won’t be using the current context to muscle a valuation down or “get in on the cheap” on great investments.
If companies have the runway should they defer their capital raise for a few months?
The cardinal mistake in fundraising is to leave it too late. In 99% of cases, companies are best served by starting conversations earlier than planned and allowing them more time to culminate. This is even more the case in the current climate. There is no knowing how long this current uncertainty will last, and by delaying a fundraise, founders may end up risking their business.
Any other general thoughts on the current fund raising environment for startups?
It is a difficult and uncertain time for companies. Some will not make it through this period. However, great businesses also emerge from and through crises – and we expect that to be the case this time too. Paul wrote a letter to our founders in early March, which has some wonderful advice for founders on this point and more broadly on how to manage through this time.
We believe the above to be applicable in all geographies that we work in, though we want to acknowledge that our team and portfolio companies in Israel and the Israeli community are managing more intense social isolation and quarantine requirements.