“These are the times that try men’s souls.” Thomas Paine, December 1776.
When Thomas Paine penned his pamphlet ‘The American Crisis’, the outlook in America was very dim. The colonists were losing the war against the British. There were food shortages. Uncertainty, fear and fatigue were the order of the day.
Today we face an entirely different American crisis brought about by the destructive coupling of the health and business environments through the covid-19 pandemic. No corner of the nation’s economy remains untouched. No sector of the economy is perhaps more at risk than the entrepreneurial sector. Savvy investors are developing scenarios of what the start-up world will look like on the other side of this crisis. Here are five tactics to position your funds to deliver the best value to your investors and your portfolio.
1 Dive deeper during due diligence
Adapt your approach to due diligence to focus on cashflow and crisis management for portfolio companies and new investments. Success factors have changed. Ask each CEO in your portfolio to submit a revised business plan. Use those updates to compare each company with the new reality. Has their value proposition to their customers improved or worsened? Does the company have alternative sources of supply? Can you make or syndicate enough of an investment to help a portfolio company weather through, or is it time to declare “sunk is sunk?”
2 Prepare to pivot
This pandemic will forever change industries and markets. How will that affect the market focus of your funds under management as well as your next fund? Do you have the internal expertise to evaluate and enter new sectors, industries or geographies? What about the companies in your portfolio? Now is the time for boards of directors to engage, especially as advisors and mentors, to help portfolio companies identify ways to apply existing IP, partnerships and expertise to emerging opportunities.
The world is more entrepreneurial; the forces of inertia are weaker. Some entrepreneurs are already moving the needle in this new reality. Would you have predicted even 60 days ago that shortages and changes to regulations would have opened the hand sanitiser market to brewers and distilleries?
3 Plan for change in how we work
After weeks of a distributed workforce, companies may recognise that work-from-home is more productive and less costly than they realised, while employees may miss in-office connections more than they thought. Going forward, organisations will manage talent differently. Start-ups that support more virtual, less connected talent and operations will be investment pipeline opportunities.
4 Look for start-ups positioned for future crises
From video conferencing software to affordable, multipurpose home office furniture, from online curriculum to telemedicine and disaster preparedness, individuals and organisations are defining a new set of needs. Corporations and government entities are likely to be more interested in robots, drones and other non-human delivery equipment than ever before. The demand for personal protection equipment in hospitals, public safety and even people’s homes may never revert to previous levels.
5 Redefine connections
With weeks, possibly months of enforced separation, people will want to connect. What if this pandemic is enough to make boomers take to TikTok and Snapchat, while millennials and Gen Zers turn from their iPhones to Scrabble boards?
Paine pushed a pivot at a critical moment in American history. He used his voice to encourage and inspire. He kept things moving. As venture capitalists we need to do the same.
We must heed our fiduciary responsibility to our investors. We must quickly figure out tactics and priorities to help our existing portfolio companies survive this pandemic. We need to help support our people and our company CEOs, both personally and professionally.
Most critically, we have to develop creative ways to keep the investment pipeline moving in new directions based on the way the world has changed, because, as we all know, there will be a morning after.
Tom Walker is chief executive and president of Rev1 Ventures, an Ohio-based start-up studio and seed investor. Rev1 has nearly $100 million under management across five funds. The firm works with a spectrum of investors, including traditional venture capitalists, angel investors, corporate venture funds and public sector capital.