Reflections While #StayingHome: Evaluating The COVID-19 Pandemic's Impact On An Asset Class
At the end of the day, much of this is out of our control, and out of the control of our portfolio companies. What we can do is start stress testing- turn this into a new variable.
A note from VentureSouq:
When you cut to the core of it, our job at VentureSouq is pretty straightforward: we predict what themes are likely to happen in the world, determine which young companies are best suited to benefit from those themes, and then invest and convince others to allocate capital into those companies.
It’s thus part of our job to reflect on macro scenarios like that which the entire world is experiencing today, and follow closely as data is released, policies are rolled out, and general temperament of people changes. We’re also drawing parallels to the First Gulf War of the early 90s, to the 2000 tech crash, 9/11 in 2001 and the Great Recession of 2008- understanding the historical fallout from events like these can provide a blueprint for how to predict outcomes or make decisions today.
But whether or not a trodden path exists for any particular company, organization, government entity, or individual even, there is one absolute certainty: that the situation we’re in now changes everything for everyone.
We are venture capital (VC) evangelists. Ultimately, we believe in the long-term gravitation of the world towards a more globalized and technologically interconnected place. There is a prevailing belief that these two factors -globalization and technology- are the root source of the black swan event we’re experiencing now.
But we have no doubt that it is the same two factors that will ultimately get us out of this. This conviction runs through the arteries of our company. But we are also individuals, who can offer unique perspectives to our stakeholders, or other members of the venture and entrepreneurship ecosystem.
So we thought it would be an opportune time for each of us partners at VentureSouq to share some insights into, one, how we are processing this frightening, bizarre, dynamic, fascinating experience, and two, where we think this dislocation will give rise to opportunity, for our stakeholders and investors, for our portfolio companies, or for ourselves as a team.
Below is Founding Partner Sonia Gokhale's account.
These are the scariest times I have lived through in my entire life. The COVID-19 pandemic is a worldwide humanitarian crisis, and we are encouraging founders to think first about their teams, families, and loved ones. In terms of macro, non-financial events having this type of widespread impact on the economy and broader life, I must admit we were not “prepared” for this. I didn’t think I’d be working from home for the foreseeable future, or trying to figure out if I am six feet away from a person as I walk by them.
As we figure out how to navigate our lives through the COVID-19 pandemic, we all can’t help but think about how this will impact the economy and our respective businesses. For us, our immediate attention goes to our existing portfolio companies– given the size of our portfolio, we have a pretty good sample size to assess the different ways this could play out. Different businesses across geographies at various funding stages will all be affected differently.
From what we have seen so far, one of the key takeaways is this– timing is everything. Being completely agnostic with respect to everything else, some companies will survive -and even thrive- based on having recently raised funding rounds. Having enough runway to ride out the impeding economic shock in front of us is right now probably the one thing that will separate the “survivors” from the rest of the portfolio.
This is the unfortunate reality of the venture capital business at this moment– and the randomness of it all is what is a bit unnerving. As VCs, we do our work, and one part of this is always communicating with portfolio companies around fundraising timelines and trajectory- however in the span of a month, the world has changed, and with the lack of active capital out there, we are talking more about preservation.
Some companies will even thrive in this turbulent time based on operating in a certain sector or geography– we are seeing this in our portfolio already, and a lot of this has to do with providing services or products related to “essential businesses,” such as food, healthcare, or logistics, or key segments such as education or financial services.
Examples in our portfolio include Bravecare, a technology-enabled urgent pediatric care clinic, which has added telemedicine through its virtual clinic and a COVID-19 symptom checker. Another is Cloosiv, a software platform that enables coffee shops and cafes to provide online mobile ordering, which has seen a spike in sales where local businesses are able to serve its customers in a contact-free safe manner. Medinas founder Chloe Alpert also started Mask Match, a not-for-profit site where the public can donate masks to healthcare professionals, helping to ensure the people that are fighting this war for the rest of us are protected.
The overarching lesson here is that even in traditional offline verticals, digitization will start to become the market norm, and startups that offer technology-enabled solutions will grow and even prosper, particularly in emerging markets.
If e-commerce, food delivery, or fintech hadn’t yet supplanted traditional incumbents, they may now, and it will be interesting to see which companies in which countries will scale through this crisis. In MENA specifically, fintech adoption may accelerate as a result of this crisis, as consumers and business opt for contactless transactions and experiences.
At the end of the day, much of this is out of our control, and out of the control of our portfolio companies. What we can do is start stress testing- turn this into a new variable. We can factor in a probability into our scorecards and evaluations: in the (hopefully low) likelihood that massive market-disrupting macro events like the COVID-19 pandemic happen in the future, how will prospective and current portfolio companies be able to react? But no matter whether or not we get that right, we don’t think any company, like us, will ever truly be “prepared” for something like this.