INVESTOR OUTLOOK PART 1: Impact of COVID-19 on angel and venture firm operations
(EDITOR’S NOTE: We’ve just experienced probably the most tumultuous nine months in our lifetimes and the end of the COVID-19 pandemic is still somewhere in our future. Many of the ways that it has impacted our lives are understood because we have lived them in real-time, while there are no doubt lingering and unanticipated impacts still to playout. That’s the unfortunate backdrop in which we asked angel and venture investors in East Tennessee to once again look back on the just concluded year and also into their crystal ball as it relates to 2021. Today begins the first in a multi-part series capturing their thoughts.)
COVID-19 upended lives, took out businesses, and called for new business plans and possibly models. How has it specifically impacted your firm and its operations – from greater use of virtual platforms to the other ways you stay abreast of your clients?
- David Belitz, Charlie Brock and Courtney Watson, Partners, Chattanooga Renaissance Fund (CRF). From CRF’s perspective, we have been very fortunate in continuing our operations fairly seamlessly and in the continued health of our team. COVID did not significantly impact our operations as we have typically worked in a distributed way. As our internal processes are not tied to working in person, our operations have continued uninterrupted. We have used various virtual platforms in the past and only increased our usage of them during the pandemic. We naturally prefer to meet in-person as we have many local companies in our portfolio, but given the health and safety of all, we have met virtually this year. We have even held a virtual happy hour to connect with our portfolio companies. Many of our portfolio companies have also adapted well and have held regular investor updates using virtual platforms.
- Eric Dobson, Chief Executive Officer, Sheltowee Angel Network. Our investments were off 75 percent in 2020 because of COVID. We invested in half the number of companies and at approximately half the normal investment amounts. So, this year was a complete and total anomaly in our history. We went completely online with our meetings from April until October, and then only a handful of our investors braved the pandemic to attend the final two meetings of the year. We rapidly adopted Zoom as a platform for interacting with investors, potential portfolio companies, and portfolio leaders. We combined all our investors across all our locations into one meeting a month. We have weathered the storm to date, and we are seeing an uptick in both companies looking for capital and investors looking to deploy capital at the end of the year. So, despite the dour conditions, I am optimistic about 2021.
- Tony Lettich, Managing Director, The Angel Roundtable. The Angel Roundtable, like everyone, has sought to social distance and become more efficient by increasing our exposure to and broadening our use of virtual platforms of all sorts. Extra efforts are being pursued to follow and maintain engagement with those portfolio companies in which we can be the most assistance. Additionally, due to reductions in the ability of our members to meet the Founders of potential new investments personally, we are spending more time with them in our investment presentation pitch and due diligence video and teleconference meetings.
- Kristina Montague, Managing Partner, The JumpFund. In March, early on in the pandemic, the JumpFund moved to remote-only partner meetings and hosted our first “SE Women’s Venture Summit” online (this is generally an annual, in-person gathering of our Limited Partners and Founders). We actually had more attendees, including companies, participating than in years past due to the accessibility of an online platform. While our new deal flow slowed this year and in-person pitches ceased, we participated in many online forums, events, panels, and pitches featuring female entrepreneurs, many national and even global. In some ways, the barriers and access to capital have been democratized by the move to virtual pitch formats for female founders. Yet, the downturn this past year in early stage funding has impacted women and Founders of color even more as in-person networking became non-existent and thus investors tend to retreat to those they “know” and feel more comfortable, within their existing networks. In May, we launched a COVID resources page on our website directed towards female Founders, and this summer we began a monthly letter to our Chief Executive Officers with resources, grant opportunities, and tips from other Founders about how they are managing through the pandemic. These have both been well-received and we’ve had feedback from Founders outside of our portfolio that these efforts have made a difference. We have also stayed close to all of our portfolio companies through this time to offer help, including bridge funding in some instances, as many had to delay next-stage raises until 2021.
- Grady Vanderhoofven, Founder, President and Chief Executive Officer, Three Roots Capital. On the equity investing side of our business, none of my portfolio companies has had an in-person Board of Directors meeting since February. Like everyone else, we haven’t physically traveled to attend a conference (industry, trade, etc.) since February. So, yes, lots of use of a variety of virtual platforms for meetings, information exchange, digital signatures, etc. On the lending and venture debt side of our business, 40 percent of our borrowers discussed with us the need for some kind of accommodation on their loans this past spring. Ultimately, 30 percent of our borrowers required accommodation (e.g., some kind of deferral), which had a negative economic impact on that portion of our business. We have managed through that, so far, by expense containment and cost avoidance when possible, and by conserving cash as appropriate
- Ken Woody, President and Partner, Innova Memphis. Since Innova has multiple offices, we have used virtual tools for years, from Zoom to Google Sheets/Docs to Trello. We expanded our use of these tools to our portfolio companies and prospective investments during COVID. We have done many more “quick update calls” and Key Performance Indicator (KPI) reports from our companies, rather than waiting for a formal Board meeting. We have also kept very close contact with our co-investors, and other VCs to make sure we’re not missing a “sea change” where the markets or conditions are undergoing a fundamental shift.