Venture Capitalist at Theory

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3 minute read / Apr 2, 2020 /

Observations about Silicon Valley Two Weeks into Quarantine

What’s going on in Startupland?

Venture rounds are closing. We’ve seen seeds, As, Bs, and growth rounds in the past few weeks. And round announcements continue. Valuations are coming down a bit, but they are all over the map. It’s too early to draw any conclusions about pacing, however.

In fundraising conversations, founders are candid. Founders share the growth story of the business before the onset of the virus, and few of them have the visibility to project end of year performance. Some founders in market today are running dual track processes, choosing between raising capital and pushing toward profitability within a certain time frame. When asked about the decision criteria for selecting a venture partner, one founder replied with a single phrase: speed to close.

Many founders are wondering about the SBA programs and are looking for clarity on the rules. There are several programs including unemployment benefits for furloughs, deferment of payroll tax, and also forgivable loans (loans that evolve to grants). The key open question is whether the affiliation rule will admit venture-backed startups.

Historically, startups haven’t been able to access SBA programs because of this affiliation rule. The rule says that all employees of affiliated companies must be considered headcount. For startups, this means every employee of every startup for every investor. Quickly, these numbers exceed the 500 employee limit. If you have questions, consult your board member or company counsel.

Different companies are seeing varying effects. Some have seen demand drop almost entirely. Others, observe slower pipeline creation, and customers request more favorable payment terms. Some are seeing significant churn. A few benefit from the move to work from home. Most businesses have begun to manage the company monthly, rather than quarterly because of this volatility. There’s a renewed focus on product-led growth and web-based demand generation.

The Federal government has become an important target for new business, particularly for enterprise companies because the budgets are stable.

Management teams are learning to lead teams entirely on video. Also, they are looking for ways to gauge productivity and employee happiness as teams adjust. How do you onboard an employee entirely remotely? It’s a question that keeps popping up. HR teams are on overdrive fielding questions about benefits and staffing, while trying to manage their part of the company remotely.

It’s a period of broad, abrupt change. As I’ve written before, once we’re through these hardships, I expect a Cambrian explosion of innovation. If there’s one thing about founders and entrepreneurs that I’ve witnessed time and again, it’s their ability to innovate during upheaval.

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