When coronavirus began to sweep across the nation, just about every industry was turned on its head. And with that uncertainty, came the question of what exactly the future of funding looked like, for both entrepreneurs and investment firms alike.
"On (March) 15 we decided we would be working remote and on that day we also decided we would take a 30-day pause on any new checks to re-evaluate the situation," Saxon Baum, vice president of investor relations at Florida Funders, said. "To see what was going to happen. Which, looking back, was really smart of us to do so we could have a little visibility into what the future looks like."
Baum, along with the region's top venture capital firms and investment banks, gathered for Tampa Bay Inno's first virtual State of Innovation: the future of funding panel on Wednesday morning. Kathy Chiu from Deepwork Capital, Dave Chitester from Seedfunders and Barry Shevlin from Skyway Capital Markets joined the conversation on all things funding during the uncertainty of coronavirus.
We've got some key takeaways below.
https://www.youtube.com/embed/g3X2M375kGE
Investors are not slowing down
Chiu, a managing partner for Orlando-based Deepwork Capital, also took two weeks off to re-evaluate her portfolio. But, she said now that a "new normal" has been set, investing is busier than ever.
"I am surprised at the pipeline," she said. "For a while I thought it would stall, when entrepreneurs would think 'What's my story now?' but by April it came back with a vengeance and because it's all remote, a lot of limitations got removed."
The ability to meet multiple founders or even discuss deals with other investors has opened during a time teleconferencing is the main form of communication.
"We've accelerated a lot of our investments since Covid," Chitester, who added Seedfunders has done eight deals in four months, said. "And it's a lot of what Kathy said, where it's a lot easier to get founders to show up at 10 a.m. Monday on Zoom than driving halfway across the state and saying, 'Well, I can't make it for two weeks.' So we have not had a problem with making deals."
Edtech, software and medtech may come out on top
While the firms are keeping their options open during coronavirus, many are expanding the industries they're investing in or further embedding themselves with companies that have been weathering coronavirus well.
"We're working on a telehealth deal right now that is certainly going to be viewed better this year than it would have been a year ago," Shevlin, who leads Skyway Capital Markets' Technology practice, said. "We're certainly looking at and talking to more folks in that space."
An easy indicator of a potential investment, Baum said, is less about an industry and more about specific companies that have managed to succeed during the valleys of the pandemic.
"We now see what we believe to be the worst of it in April, with some of the worst revenue drops, some of the worst customer drops and now that we're through that, what are the companies that are still doing well through this?" he said.
Baum pointed to a "well-timed" investment in a Canadian software company and also mentioned both education technology and retail technology have the opportunity to soar in coming months.
"We believe K-12 will be absolutely flipped on its head," he said. "The opportunities inside it are tremendous. The other piece is retail. I don't mean going into a store, but what does the future look like?"
One thing that may not be receiving funding anytime soon?
"I've noticed from our partners, they're really hesitant to focus on anything related to travel right now," Chitester said.
Startups are getting creative when it comes to funding
"We're seeing venture debt be put on some companies, high interest loans, high liquidation in the 'rescue' scenarios," Baum said. "So that's been something that changed a little bit. But that's an opportunity for investors to get the best deals possible."
Shevlin, who specializes in helping later-stage companies with valuations and exit deals, believes things have begun to stabilize now that the initial shock of the coronavirus shutdown has passed.
"I think the timing is still okay now (for an exit)," he said "Things have seemed to get back to normal in June and July, and we haven't seen a significant change (in valuations). But, we have seen a little more reluctance from the banks from a leverage perspective. There is going to be a little less debt available, so it may effect price or structure."
And Chiu has simple advice:
"I would just say that to navigate all these challenges, people who can truly believe in this 'cash is king' concept to navigate these challenges, they'll be a winner."
The next step for VC firms: equality among Black entrepreneurs
Chitester recently launched the Seedfunders' Opportunity Fund, which specifically focuses on lifting up Black entrepreneurs in the investment phase. He said it was in direct response to George Floyd's death in Minneapolis, that caused a reckoning and reflection among many when it comes to racial equality.
"'Black entrepreneurs matter' is our tag line," he said. "We want to find them, get them launched and be the friends and family round."
Chiu pointed out the nuance of finding and funding Black entrepreneurs in a world that often comes down to who you know.
"It always come down to, if there is nothing at the top of the funnel, it's tough to squeeze anything out at the bottom," she said. "We try to go to diversity-specific pitch events in hopes of finding them, but if they haven't gotten through the first hurdle, they're unlikely to show up at the top of the funnel. It goes beyond the established pitch events. It really is about broadening your personal networks."
