INVESTOR OUTLOOK PART 2: Advice then and now for portfolio companies
(EDITOR’S NOTE: This is the second article in a 10-part series capturing the thoughts of Angel and Venture Capitalists who invest in East Tennessee as they look back on 2020 and ahead as we begin 2021.)
When COVID-19 escalated in this country in late March and early April of 2020, we asked many of you to describe the advice you were offering to your portfolio companies. Has this advice changed in the subsequent months and, if so, how?
- Eric Dobson, Chief Executive Officer, Sheltowee Angel Network. It is still a challenging market for capital through January. We advised our portfolio companies to hoard cash and make tough decisions quickly on where they were expending resources. We still believe that is true for the next few months as the vaccine begins to permeate the population. Mediocre opportunities did not bother seeking capital in the pandemic. Interestingly enough, valuations during the pandemic did not appear to drop. However, the number of companies seeking capital dropped significantly while the quality of those looking for capital went up In other words, only the best-of-the-best braved the pandemic to raise capital, and they were confident enough to hold valuations high and received funding. This demonstrates that great opportunities will receive funding even under the harshest of economic conditions. I believe we will see a significant economic rebound in the spring and possibly a period of time analogous to the 1920’s. So, early 2021 should be a good time to seek capital, and I believe it will accelerate through the summer.
- Tony Lettich, Managing Director, The Angel Roundtable. Earlier this year, we suggested our portfolio companies: (1) assess the implications of the macro environment and how it affects every aspect of their operations; (2) preserve cash, be prepared for the worst case to the extent possible, but continue pressing forward with the business in a safe, focused and highly disciplined manner; and (3) take care of their teams to the best of their firm’s ability as they are their future and remember they look to the Founders/executive management for direction, so be optimistic but realistic and honest with them. While these still hold, we would strongly encourage them to consider and prepare for various options for the company’s future path and be prepared to pivot to the appropriate option as the future unfolds. Finally, we suggest they look for opportunity; uncertainty and change can create opportunity; find it and take advantage of it.
- Kristina Montague, Managing Partner, The JumpFund. Now, it is about long-term recovery while in the spring, we were still in crisis mode. How are they working on forgiveness of their Paycheck Protection Program? How are they preserving cash? How are they adjusting their outlooks for an economy which may not recover for several years? There has been a wide gap in early and next stage funding this year, and that has only widened with Limited Partners moving to invest in later stage funds and Venture Capitalists preferring follow-ons to new deals. Because many (corporates and philanthropy) are recognizing that women and Founders of color are falling even further behind during the pandemic, we continue to find and recommend alternative funding resources to our founders to help them get through these leaner times.
- Grady Vanderhoofven, Founder, President and Chief Executive Officer, Three Roots Capital. Our advice has not changed. While I do believe we now are seeing some light at the end of the tunnel, we aren’t out of the tunnel yet. By the time you publish this answer, our thinking may be different, but as I write this answer on December 11, we believe administration of the first dose of COVID vaccine in the United States is imminent. We’ll see what happens over the course of the next 30 to 90 days.
- Ken Woody, President and Partner, Innova Memphis. No fundamental changes in our approach since March/April. We have seen a wide disparity in our how companies and their sectors have coped with the COVID landscape. Many of our healthcare companies had total shutdowns when hospitals stopped elective surgeries and/or pushed out procedures to make beds available. Most of those companies have seen a strong rebound to their revenues and are better positioned now for growth. Logistics companies saw strong increase in demand and a push for simplification and productivity, good things for innovative start-ups. As always, clear headed leadership was critical to success, and those companies who prepared well in advance have survived and even thrived in many cases.
- David Belitz, Charlie Brock and Courtney Watson, Partners, Chattanooga Renaissance Fund (CRF). Our support of CRF portfolio companies has not changed significantly throughout the pandemic. We have encouraged them to review federal and state relief programs, reduce operating expenses, modify timelines for capital raises, and reach out to us for specific needs. As we come to the end of 2020 and the pandemic continues in 2021, our support continues in much the same way. We all look forward to celebrating a new season of health and prosperity.