In the last week I’ve spoken with or heard from over 100 venture investors about how they and their firms are thinking about Covid-19… AMA. I’ll be doing Q&A from noon through 5pm pacific today.
What are your best predictions for the Fall season? Back to the pre-crisis level? Still a downturn (valuations, deal volume), or a rebound with even more funding activity?
I'm thinking valuations in private markets will be down 30%-50% from their highs, basically bringing us back to approximately 2014/2015 levels. I think we get there by fall, winter 2021 at the latest. Valuations approximately $2M-$4M for pre-seed, $4M-$8M for seed, $6M-$15M for seed+ and Series A rounds at around $15M.
Thats where I see valuations landing, in terms of funding I think we'll still see plenty of activity once shelter in place crisis levels pass. There is a lot of money on the sidelines right now thats already been raised by venture firms and needs to be deployed, particularly at the biggest firms.
While the big firms thrive I believe we'll see 50%+ of the new/micro vc firms either fail to raise a second fund or consolidate. From the outside it will be hard to see, since venture firms die very slowly and very quietly but they'll stop deploying capital and eventually it will get around which firms have become the walking dead. This dynamic is what will help to keep pre-seed through seed prices down around 2014 levels.
Wow! So, a hypothetical hot company of 2019 with $15M cap on a seed deal will be looking into raising Round A in2020 on a either a flat or down round terms...
To Q1: Everyone is moving to wartime footing but for some its fighting a rear guard action and for others they're prepping for their D-Day landing. Most are doing the former but, as with all things, some industries/companies are seeing a boost right now. The smart companies in those industries are preparing to take advantage of lower than usual CAC (as other companies have scaled back spend) and are looking to position themselves as market leaders once normalcy returns.
Highly context specific. I would think At-Home-Care has an opportunity right now given the mortality rates we've seen in assisted living homes and given the strain we're seeing on traditional healthcare infrastructure. Obviously everyone needs to guard cash because we're still in uncertain times but where there are opportunities we need to be ready to pounce.
For the second question I'll largely need to defer even though I like to think I have an opinion on everything. I know very little about the debt / LBO markets. When it comes to come equity investment I think the next 2 weeks or so people are still pretty reluctant to dive deep on new conversations and are just closing the loop on existing relationships. I think investment pace will pick back up once we see the curve start to flatten in the major metros.
What's the timeline look like for VCs if you're a healthcare startup looking to do a round this year? (So far everyone seems in heads-down, conservation mode)
If you're not already deep in a process with a few firms right now, you shouldn't be starting a new process for the next couple weeks as most firms are still in triage / fire fighting mode with their current portfolio companies and some with their LPs.
If you try to start right now at best you'll find it hard to get traction and at worst you'll get intro meetings but not get the same fair shake you might get in a normal environment and you will have spoiled you bite at the apple.
I'll caveat all of this by saying that if you're working on something that is Covid-19 relevant or public health relevant you might get fast tracked. If you can tell a compelling story about the post/mid Corona world and how you are desperately needed in that environment then its worth starting convos now.
Yeah. The other advice I'm giving is to do soft outreach now. (1) This is what we're building, (2) this is where we are today, (3) this is where we'll be in 6 months/milestones we'll hit and (4) we'll be looking to raise $XM when we do so that we can get to (5) milestones Y&Z. This way its low pressure but when you reach back out in a few months to say you've not only hit your milestones but blown them away you have already started building trust before your first real pitch.
Q3: Any outliers from those 100 contacts Jake? Q4: What did you think was unique or uncommon?
Jake, thanks for your insights!!
What are your best predictions for the Fall season? Back to the pre-crisis level? Still a downturn (valuations, deal volume), or a rebound with even more funding activity?
I'm thinking valuations in private markets will be down 30%-50% from their highs, basically bringing us back to approximately 2014/2015 levels. I think we get there by fall, winter 2021 at the latest. Valuations approximately $2M-$4M for pre-seed, $4M-$8M for seed, $6M-$15M for seed+ and Series A rounds at around $15M.
Thats where I see valuations landing, in terms of funding I think we'll still see plenty of activity once shelter in place crisis levels pass. There is a lot of money on the sidelines right now thats already been raised by venture firms and needs to be deployed, particularly at the biggest firms.
While the big firms thrive I believe we'll see 50%+ of the new/micro vc firms either fail to raise a second fund or consolidate. From the outside it will be hard to see, since venture firms die very slowly and very quietly but they'll stop deploying capital and eventually it will get around which firms have become the walking dead. This dynamic is what will help to keep pre-seed through seed prices down around 2014 levels.
Wow! So, a hypothetical hot company of 2019 with $15M cap on a seed deal will be looking into raising Round A in2020 on a either a flat or down round terms...
Hey Jake,
I deeply appreciate your time, experience and insight. Thank you for doing these!
First Q: What sort of footing are you seeing founders switch to (wartime vs growtime)?
Second Q: We're in process with three target companies in Home Healthcare. Are there pockets of HC equity/debt that are still writing checks?
To Q1: Everyone is moving to wartime footing but for some its fighting a rear guard action and for others they're prepping for their D-Day landing. Most are doing the former but, as with all things, some industries/companies are seeing a boost right now. The smart companies in those industries are preparing to take advantage of lower than usual CAC (as other companies have scaled back spend) and are looking to position themselves as market leaders once normalcy returns.
Highly context specific. I would think At-Home-Care has an opportunity right now given the mortality rates we've seen in assisted living homes and given the strain we're seeing on traditional healthcare infrastructure. Obviously everyone needs to guard cash because we're still in uncertain times but where there are opportunities we need to be ready to pounce.
For the second question I'll largely need to defer even though I like to think I have an opinion on everything. I know very little about the debt / LBO markets. When it comes to come equity investment I think the next 2 weeks or so people are still pretty reluctant to dive deep on new conversations and are just closing the loop on existing relationships. I think investment pace will pick back up once we see the curve start to flatten in the major metros.
What's the timeline look like for VCs if you're a healthcare startup looking to do a round this year? (So far everyone seems in heads-down, conservation mode)
If you're not already deep in a process with a few firms right now, you shouldn't be starting a new process for the next couple weeks as most firms are still in triage / fire fighting mode with their current portfolio companies and some with their LPs.
If you try to start right now at best you'll find it hard to get traction and at worst you'll get intro meetings but not get the same fair shake you might get in a normal environment and you will have spoiled you bite at the apple.
I'll caveat all of this by saying that if you're working on something that is Covid-19 relevant or public health relevant you might get fast tracked. If you can tell a compelling story about the post/mid Corona world and how you are desperately needed in that environment then its worth starting convos now.
So hold off until Q3 - then probably try to get it in before the election if you can! Thanks Jake!
Yeah. The other advice I'm giving is to do soft outreach now. (1) This is what we're building, (2) this is where we are today, (3) this is where we'll be in 6 months/milestones we'll hit and (4) we'll be looking to raise $XM when we do so that we can get to (5) milestones Y&Z. This way its low pressure but when you reach back out in a few months to say you've not only hit your milestones but blown them away you have already started building trust before your first real pitch.
Hey Jake. Dropping in to say hi. Thanks for what you do and I love the way you're using Substack!!
Thanks for the kudos and for the Substack tutorial Austin! Experimenting with new content formats next week too :-)