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How venture capitalists are responding to these uncertain times

Venture capitalists are very familiar with volatility. But the pandemic has cast the investment sector into uncharted territory.

How venture capitalists are responding to these uncertain times

The coronavirus has made its insidious, devastating march around the planet and has spared no corner of the global economy. From the stock market to grocery store stockrooms, the world that many of us take for granted has suddenly vanished. Making this economic damage even more catastrophic is the unprecedented uncertainty that comes with it. Simply put, no one really knows how deep and longstanding the damage will be, nor exactly how we might begin to fix it.

Venture capital is very familiar with volatility — by their very nature, VCs place bold, long-term bets on risky ventures. But the pandemic has cast even that investment sector into uncharted territory. In such a fluid, ambiguous climate, how do VCs protect their current ventures while also still looking toward new ones? Given lowered interest rates, is this a good time to invest? Are certain ventures — medical technology, say — now more appealing? Or is all the turbulence simply paralyzing?

To a certain extent, Mark Skapinker has been here before. The co-founder of Brightspark Ventures, and long-time luminary of the Canadian tech sector, launched his firm in the midst of the dot-com meltdown of 2000. He weathered both the geopolitical and economic instability following 9/11 and the turmoil of the 2008 financial crisis. Skapinker is hopeful that tech will be a “shining light” in whatever recovery comes after this current crisis. To that end, he’s evaluating three different segments of his business: what Brightspark’s existing portfolio companies should be doing; what they should be looking for in terms of new investments and deal flow; and how Brightspark itself is operating.

The latter is the easiest — Brightspark recently closed a new fund, Skapinker says, and is well capitalized. For portfolio companies, Skapinker is encouraging them to think about every possible outcome the crisis might generate and to be as conservative as possible in the short-term. “Even for businesses that are relatively healthy, we’re making sure that they’re thinking this is not business as usual,” he says. “Even when the virus is under control, we’re going to be dealing with consumer sentiment and CFOs that are cutting budgets and waiting for the entire economic machine to return to its normal pace and cycles.”

The diversity of companies in Brightspark’s portfolio means, of course, that they’re all experiencing the crisis in different ways. Some, like Hopper, a travel-recommendation engine that is Brightspark’s largest investment, are at a virtual standstill while others, which provide online education tools or natural-language AI to customer service centres, are enjoying new opportunities. In terms of new investment, Skapinker says that Brightspark is still looking at new companies, low-burn ones that are funded for 12 to 24 months, and, unsurprisingly, those that specialize in remote-work technology. “I wish I had invested in Zoom before their IPO,” Skapinker says.

Other firms are, for the moment, completely consumed with the well-being of their employees, portfolio companies and investment community. “First and foremost, our focus has been on the health and safety of our staff and the staff of the companies we work with,” says Ben Wilde, vice president, business development and marketing at Georgian Partners. “Basically, we’re trying to help people work through what needs to be done in a climate where what needs to be done is changing every day.”

Wilde argues that it’s too early to talk about shifting business models or new venture opportunities, and that simple, regular, helpful exchange of information is key to long-term survival. Georgian is fortunate in that, long before the current crisis, it established its Georgian Growth Network, a private community of portfolio company executives that shares expertise and experience around the problems that growth stage companies face. “The questions that our companies are asking is ‘How can we help? How can we be of assistance to others?,’” Wilde says. The Toronto-based web-based education company Top Hat, for example, has made their platform available for free for the balance of the school year. Another of Georgian’s portfolio companies, Glooko, is similarly offering its remote diabetes monitoring service free to medical clinics during the pandemic.

Other VCs are arguably a bit more sanguine. In a letter to investors and partners, Kathryn Wortsman, managing partner at Amplify Capital (formerly the MaRS Catalyst Fund), cautioned that the firm’s investments would suffer in the short term. “Slower business decisions, fundraising delays, talent scarcity and other effects of the new pandemic are inevitable over the next six months,” she wrote. The pandemic had forced her to postpone the close of Amplify’s Fund II, scheduled for the end of April, to an indeterminate date.

At the same time, Amplify specializes in three sectors — healthcare, online education and cleantech — and Wortsman was equally confident that her portfolio companies were in an advantageous position. “We’re kind of a good hedge,” Worstman says. “A lot of our companies are going to benefit, unfortunately or fortunately, from this.”

Even with the postponement of that close, and the fact that Amplify couldn’t make new investments until that fund closed, Wortsman was still getting calls from investors who wanted to give her money. “Their tide has been turning,” she says. “And investors are starting to say, ‘You know what, maybe I should diversify out of real estate or the stock market. Maybe I should give Amplify some money to protect the future for my kids and grandkids.’ But also, when this sort of thing happens, people put their money under their mattress. So, who knows? It’s going to take time.”