These are trying times and they certainly are if you are a startup or a Venture Capital fund like us at Elementz Ventures. Due to the pandemic, venture capital is in major state of change – the boon of the last several years where we have seen record-breaking VC investments of over $100B in the US for the past two years is gone. We are now in a wait-and-see stage which means there is so much uncertainty about what will happen in the future. So what does the future look like for VC? Let’s consider the short-term, medium-term and long-term outlooks for VC investment.
In the short-term we see that the venture funds that have already raised and invested are spending a lot of time with their portfolio companies helping them to weather the current storm. Their advice to start-ups is to do whatever it takes to survive which means all unnecessary expenses and making sure they can take advantage of the various government loans/grants available to them. For funds currently raising like us, we are in a holding pattern as most LP’s are taking advantage of the public market uncertainty before returning to alternatives after things stabilize. The current climate looks like things would pick up again in the 3rd Qtr for raising.
In the medium term, most funds need to be opportunistic and take advantage of the sectors that are hot right now. According to a recent NYTimes these sectors include, “telemedicine, food delivery, online learning, remote work, gaming — are thriving amid the quarantines.” For funds with startups within these sectors, they should consider doubling down where it makes sense in order to both support their growth and leverage their returns. A partner fund of Elementz Ventures is doing just that with further investment into three of their portfolio startups in EdTech and Bio.
In the long-term Venture funds need to be rethinking their strategy for investment. As we look at the future after this pandemic, we need to develop a strategy that accounts for the types of companies that would grow. And in turn we also need to look at what sectors and types of startups would not be a good investment for a venture fund.
Here at Elementz Ventures, we focus on SaaS startups and we are evaluating startups that would come out of this pandemic with a strong product-market fit as well as solid growth potential. Choosing the right deal flow is as much about science as well as intuition and these are the factors we will consider in order to make Elementz Ventures a successful fund.