Reflections While #StayingHome: Great VC Stories Have Been Born Out Of Chaos
Venture investors can learn from this, and not only continue to invest in great founders with big ideas through this rough patch, but also perhaps more than ever before support their existing portfolio companies.
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 Suneel Gokhale's account.
The rapid spread of COVID-19 and the resulting market crash has investors and startups within the technology ecosystem fearing the worst. Founders are extremely worried about raising capital and cash flow, and investors globally have already started to pull back on deals just months removed from a venture capital market flush with cash and large financing rounds.
Against this backdrop of doom and gloom, it is important to remember that numerous iconic investors have made their bones in downturns: Warren Buffett has invested aggressively in the worst of times, so has George Soros, and world-renowned Silicon Valley venture capital firm Andreessen Horowitz (a16z) set up shop in 2009.
What sometimes is overlooked is that in the midst of the Global Financial Crisis of 2007-08, some of the most well-known unicorns in the world emerged to later become household names. Companies such as Uber, Airbnb, Dropbox, and Credit Karma are examples of startups that braved the Great Recession to become global disrupters and once-in-a-lifetime investment opportunities.
All of this is thus reason for hope– courageous founders will continue to build and create even during the worst of times. The question really is, how will we, in the investor community, behave?
Reputations will be forged during this time of uncertainty, and long-term VC investors who believe in technology and the impact it can have on people, businesses, and society as a whole will emerge from this dark period stronger.
But it’s not just a commitment to continue to invest in technology that will have an impact; it’s what comes with that capital. Firms like a16z, who quickly joined the Mount Rushmore of venture capital during the last recession, were not established to simply invest in startups and hope for good returns.
Part of a16z’s blueprint was Creative Artists Agency (CAA), which was a talent agency started by Michael Ovitz, the acclaimed Hollywood agent. The CAA model was not to only represent clients in binary transactions with studios, but to provide strategic value to talent through leverage by representing actors, directors, and producers, and then packaging this talent together when negotiating with studios. CAA and their clients became omnipresent in Hollywood.
In a similar vein, firms like a16z have sought to build a platform beyond simply investing in early-stage technology companies– they hired teams of people to service the “talent,” i.e. the entrepreneurs they were investing in, by assisting founders with identifying and hiring talent, providing advice on marketing, and driving relationships with potential key customers.
Venture investors can learn from this, and not only continue to invest in great founders with big ideas through this rough patch, but also perhaps more than ever before support their existing portfolio companies, given the current climate, by guiding them on operational planning, finding synergies between portfolio companies, and their key customers and assisting with fundraising.
Many companies in all of our respective portfolios are going to feel varying degrees of pain during the next six to 12 months and maybe longer, and we, as investors, have a moral (and not to mention financial) obligation to go down into the bunker with the founders we have backed through the good times.
When the sun rises again, VCs that were side-by-side with their portfolio companies will have built up immense reputational capital, which will be extremely valuable when a hot tech ecosystem re-emerges.