This afternoon, the law firm Fenwick & West hosted a virtual roundtable discussion with New York-based venture capitalists: Hadley Harris, a founding general partner with Eniac Ventures; Brad Svrluga, a cofounder and general partner of Primary Ventures; and Ellie Wheeler, a partner with Greylock.
Each investor is experiencing the coronavirus-driven lockdown in unique and even positive ways. Their professional experiences were very much in sync, however, and founders should know the bottom line is that they aren’t making brand-new bets at this very moment.
On the personal front, Wheeler is expecting her first child and said that being at home is helping prepare her the largely indoor life for all brand-new parents. Harris noted how nice it is to have lunch with his wife every day. Svrluga said that he has dined with his children for 31 consecutive nights, a treat he hasn’t enjoyed since the earliest days of his firstborn 12 years ago.
Professionally, things have been more of a struggle. First, all have been swamped in recent weeks, trying to assess which of their startups are the most at risk and which are worth salvaging and how to do this.
They are so busy, in fact, that none is writing checks right now to founders who might be trying to reach then for the first time. For his part, Harris takes particular issue with investors who’ve said throughout this crisis that they are still very open to pitches. “I’ve seen a lot of VCs talking about being open for business, and I’ve been pretty outspoken on Twitter that I think that’s largely bullshit and sends the wrong message to entrepreneurs.
“We’re completely swamped right now in terms of bandwidth” because of the work required by existing portfolio companies. Bandwidth, he added, “is our biggest constraint, not money.”
None thinks that meeting founders exclusively remotely is natural or normal or conducive to deal-making — not for their firms, in any case.
Wheeler noted that while “some accelerators and seed funds that are prolific have been doing this in some way, shape or form for a bit,” for “a lot of firms,” it’s just awkward to contemplate funding someone they have never met in person.
“The first part of the diligence process is the same, that’s not hard,” said Wheeler. “It’s meeting the team, visiting [the startup’s workspace], meeting our team. How do you do that [online]?” she asked. “How do you mimic what you pick up from spending time together [both] casually and formally? I don’t think people have figured that out,” she said, adding, “The longer this goes on, we’ll have to.”
Each is far less interested in sectors that aren’t highly relevant to this new world. Wheeler observed that many of people have discovered in recent weeks that “distributed teams and remote work are actually more viable and sustainable than people thought they were,” suggesting that related software is of continued interest to Greylock.
Svrluga said Primary Ventures is paying attention to software that enables more seamless remote work, too. Telecommuting “has been a culture positive event for the 18 people at my firm,” he said. “We’ve found ways to come together and have virtual lunches. ” Still, he continued, while we have “25% of the right tooling” for entirely distributed workforces — he noted that “Zoom is great, Slack is great” – – he sees the “rest” as “missing.
Indeed, software that could fill in the “rest of what the in-office experience is like and the randomness of connection,” would be particularly interesting to him, from the sound of things.
Naturally, the three were asked — by Fenwick attorney Evan Bienstock, who moderated the discussion — about downsizing, which each had noted was an invariably part of lengthening a startup’s runway right now. (As Svrluga offered, even “where companies have the support of existing investors — [meaning we’re]. opening the round and adding capital through a variety of structures depending on the company) — [we’re] almost never doing that without some concurrent reductions in team size. It sucks. People are losing their jobs. But to continue to run teams with the same organizational structure as 60 days ago, [which was] the most favorable environment for building industries, you can’t do it.”)
Each suggested that for startups that have to cut, management teams should cut deeply to keep from having to do it a second time. No one wants to do it. But “no CEO has ever told me, ‘Dammit, we cut too far,'” said Svrluga, who has been through two downturns in his career. In contrast, “at least 30%” of the CEOs he has known admitted to not going far enough to insulate their business while also keeping its culture intact.
The latter piece is an especially fragile one, suggested Wheeler. “It’s so hard to do [layoffs] well.” Being forced to do them remotely makes it that much worse. As she noted, “Maintaining culture after a remote [reduction in force], no one leaned how to do that [before this pandemic struck]; it’s really hard.” But the “second cut hurts way more,” she continued. “It’s the second [layoff] that really throws people.”
As for what’s next, the VCs all said that they’ll be receptive soon to new ideas after spending the last few weeks working through layoffs and burn rates and projected runways and the new stimulus package that they’re trying to find a way to make work for their startups. “It’s will probably be a gradual thing,” said Harris. “I’m not sure what next week holds but feel free to ping me in a month and I’ll let [founders] know if I think it’s opening up.”
