Muddy waters, investors lockdown and practical founders stuff
#24
This is the 24th edition of Sunday CET, a weekly curation of what’s interesting in the European investment tech landscape.
Writing this from Stockholm - it really feels good to be back in Europe, away from the US hysteria and their own way of dealing with chaos.
The past 4 weeks have been surreal and unfolded extremely quick. We’re living unique times, with many unknown variables and uncharted territories.
Unknown variables means uncertainty. Uncertainty means higher risks. Higher risks means losing money, for both investors and founders.
For some investors this is a rather new situation, augmenting drivers such as panic and greed.
Why panic - well, overnight the market value of the assets under management halved.
Why greed - the assets available for purchasing from the market are at half price too.
Does it make sense? No and yes.
No as in fundamentals of a company don’t change overnight. One day you sit on a healthy foundation executing a strong plan ahead. The next day everything is fundamentally different and you need to adapt for a Covid-19-degraded market.
Yes as it’s a textbook example about how the macro environment is collapsed by an unexpected event triggering rollover effects for any great business, altering its course in a dramatic way.
This is a systemic risk, usually accounted for by investors’ due diligence. A coronavirus type of event is not a common occurrence, it is arguably a white swan - a market reset has been anticipated for some time now.
So what can we make of it?
It is likely that some investors didn’t even deal with this kind of situation before - with notable exceptions, most people in the VC business, at least in Europe, are in their 30s, and hardly experienced when it comes to dealing with wartime management.
The theory frameworks they are taught to use for doing their job have become suddenly more complicated - the last period with somewhat similar circumstances was 10-12 years ago, when they were probably with different jobs or still in school.
On the other side, most entrepreneurs are actually used to operate in this type of environment - being in the unknown and dealing with the unexpected is standard for people building companies. However, this is a particularly opaque situation as i) there is no timeline in sight for a macro resolution and getting at an equilibrium and ii) because of that, you cannot plan and budget accordingly.
Subject to stage and vertical, that means the 2020 resource allocation needs to be changed i.e. changes in headcount, different cash management, customer discounts etc.
Particularly laying off people is very challenging as you are trying to build a long lasting org and it is not easy to hire great people anyways. And they are your people, not just numbers you need to accommodate in a budget. Quite frankly, the most difficult time of my life as a 15+ years entrepreneur was when I had to lay off half of my team so I could cut expenses for survival, back in 2009-2010.
It is what it is and you gotta do what you gotta do. The more the unknown persists though, the more likely it is that startups will dry out and die.
We’re dealing with a 2-in-1 context: a healthcare crisis and an economic recession, one triggered by the other. Until we get a resolution for the first, it is basically impossible to anticipate diligently the circumstances for operating in the second one.
We are most likely looking at a U-shaped trajectory spread on a 18-24 months span, with the following 3-6 very much under day-to-day basis, probably the bottom of the U. Thereafter it will be more difficult to re-create a decimated environment and get to a healthy overall context. Time consuming and expensive.
The good news is that if you come out of it, you will be in a stronger market position.
The bad news is that if you are looking to raise today or in the next 3-6 months, this is not ideal.
The VC market has locked up and investors are pulling the rug from under founders - effectively frozen, straight talk and elegant explanations - with the nuance that most of them are still open for business in the sense of not saying no to look at a bargain and/or simply taking pitches because their pipeline is as important as their portfolio (here is a handy list).
Nevertheless, now it is not a good time to meet strangers. Let me explain a little.
When pitching, your job as a founder is also to build a relationship, to sell yourself, to make the investor like you and feel a sense of connection and obligation to you personally so that they will eventually give you the money to build a business mechanism that you are ostensibly there to explain.
This is hard to do via Zoom only, when the whole world is under quarantine.
It is hard for investors to get a good read of the dynamics, the hands-on approach and the DNA of the team - the investments are made based on teams at least on equal grounds as on markets and on opportunities per se.
It is equally harder for a founder to get a read via a video call on the VC team relationships and vibes, and make an educated guess about how they will treat you after they give you the money.
And assuming things go further than the pitching call, the lack of future clarity will give founders little leverage to negotiate reasonable terms with people they have never met in their life anyways.
The mileage can vary of course i.e. no-brainer opportunities, already-existing vc-founder relationships etc.
This is the period founders need to keep their heads down and make the product/business 10-100x better keeping it alive with the available resources. Because growth - what investors are interested in the most - is not going to happen in this period. Kind reminder: this is the best time to start a startup.
The current uncertainty will also lead to odd situations such as investors not honoring their commitments. Yes, it is unprofessional but this happens sometimes. There is even a rule about who is doing it. Some even try to explain this behavior.
These individuals will never be named publicly because this is a relationship business. Founders don’t want to burn bridges and investors are friends with each other. And deal sharing opportunities are more frequent and important than “that time I screwed a founder because I coronavirus panicked” situations. It is part of their job. And no, I don’t buy the rep theory in this case.
More money in the market
🇳🇴 Skagerak Maturo (one of largest local VCs) wants to invest NOK 500M ($48M) in tech companies.
🇳🇴 DNV GL created a NOK 400 million ($36M) fund to invest in 15-20 new energy and maritime startups.
🇬🇧 Emerge Education announced a £10 million edtech seed fund.
🇳🇴 Skyfall Ventures announced NOK 50M ($4.5M) for its first venture fund.
Interesting bets
🇧🇬 provider of a paperless corporate card that simplifies expenses for businesses | €3 million | Earlybird, TinyVC, angel investors
🇨🇾 an online marketplace for aircraft parts | $9 million | Marubeni Corporation
🇪🇪 operator of a B2B telemedicine platform | €2 million | angel investors
🇫🇷 provider of a subscription based corporate benefits platform | €1.5 million | Angelor, Bpifrance
🇫🇷 podcast platform business | €1.2 million | Nord France Amorçage, IRD Gestion, angels
🇩🇪 battery analytics software | €11 million | Creandum, Cherry Ventures, UVC Partners, Speedinvest
🇳🇱 provider of a performance management platform for customer support teams | $3 million | Gradient Ventures, Partech
🇳🇱 provider of a smart addressing platform for navigation and location-based services | $2 million | Here Technologies, Elev8.vc, Venturerock, SOSV
🇳🇴 software developer for brand activation management | Standout Capital
🇪🇸 clean (plant-based) energy provider | €500k | Archipelago Next, WA4STEAM
🇸🇪 developer of robotics software | $4 million | Tibia, Fairpoint Capital
🇨🇭 manufacturer of an optical blood pressure wrist monitor | €5.6 million | Redalpine, Translink Capital, Investiere, Sparks Street Capital
🇨🇭manufacturer of tech for bonding different types of glass to metal | €458.6K | Business Angel Switzerland
🇬🇧 maker of spatial technology | €14.9 million | Singapore’s City Developments
🇬🇧 provider of surveillance software for tapping client conversations | £5.5 million | NatWest
Research, data, observations
🇫🇷 Startups are really strategic for Macron - France announced a $4.3bn support crisis package for startups. That is on top of the 5 billion announced last fall.
🇩🇪 Germany has rolled out a staggering €50 Billion aid package for artists and cultural businesses. Respect!
🇬🇧 The UK’s State of the Nation report (based on 2019 data).
🇪🇺 Tech.eu partnered with Crunchbase. About time. :-)
🇪🇸 Mobile World Congress 2020 organisers will offer refunds or discounts to future events.
🇬🇧 Draper Esprit is doing office hours to learn about startup challenges - looks like a dealflow sourcing form in a Corona version package.
🇳🇴 A poll of the startup community in Norway about the COVID-19 challenges.
🇪🇪 Once working from home when COVID quarantines started, Estonians intuitively spread out from bigger cities to their summer homes and country houses.
🇳🇴 In Norway it is the other way around - people are asked to not use their cabins (enforced by police). The rural areas were afraid that their hospitals would be easily overwhelmed.
🇬🇧 Oxford University put together a database to track government responses to COVID19
🇫🇷 Tariq Krim is doing something similar.
🇵🇹 More than 100 companies put together an initiative with 3000+ people working on some 30 projects, including 3D-printing medical equipment, analysing patient data and finding housing for health workers. They raised €120k so far.
🇪🇸 The Spanish put together Coronamadrid and Cita Médica en Casa for a first CV symptom evaluation, Cooperavirus for producing/sourcing medical equipment.
🇩🇰 Denmark’s Idea Could Help the World Avoid a Great Depression
🇪🇺 The European Commission urged Europe's telecoms giants including Deutsche Telekom and Orange to share people's mobile metadata to help predict the spread of the coronavirus.
🇬🇧 From the can’t make this shit up department: UK didn’t participate in the first procurement schemes launched by the EU because the emails sent to the UK inviting it to take part were somehow missed.
Bonus:
The annual NVCA Yearbook documents trends and analysis of venture capital activity in the United States from the past year
Impact of Covid19 on China VC & PE:
Feb '20 vs Feb '19:
$7Bn vs $13Bn, -47%
232 vs 368 deals, -37%
Sequoia China 25 investments in Feb (+ Yoy), 9 are follow-ons.
Matrix China 8 smaller deals so far this yr (vs 3 last yr). Tencent 16 deals. Still v active.Cash is king: flows, balances, and buffer days - evidence from 600,000 Small Businesses
Creepy - Zoom is in the advertising business, and in the worst end of it: the one that lives off harvested personal data. What makes this extra creepy is that Zoom is in a position to gather plenty of personal data, some of it very intimate (for example with a shrink talking to a patient) without anyone in the conversation knowing about it. More + Zoom’s side of the story
Speaking of Zoom:
How the viral app Houseparty is entertaining a generation in lockdown
CV impact on local business based on Yelp data
What others think
🇬🇧 Strategies for Managing in Crisis like Covid-19 - Robin has been around the block for a few times, his advice is always very good.
🇪🇺 How to react to COVID-19 — an operating guide for startup founders (Veronika Riederle & Gonz Sanchez)
🇬🇧 DN Capital also put together a slideshow on the subject.
🇩🇰 The Situation Room #1: Observations from the Front Lines
🇪🇺 Dispatch From Lisbon: Investors in Europe close rapidly any pending investment rounds and put on hold new investments.
🇪🇺 Three Nordic VC companies - one Danish, one Finnish and one Swedish - started to do podcasts together.
Bonus:
Advice for founders to operate in a downturn situation (NFX)
Fascinating to see how last weeks events unfolded through the experience of Stewart Butterfield, Slack’s CEO
The following is the truth you need to hear. I also want you to know you will be OK.
If your customers aren't buying right now and you need to shift focus away from demand gen, here are some places you could spend time...
The economics of restaurant business and why selling via delivery app-based distributors is not profitable:
Spillover effects - not only restaurants are highly affected by CV, but the entire supply chain.
Happy Sunday - be safe and be sane!
Thanks for reading 🙌
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Created every Sunday by @drnovac. Please share it with people who may find it interesting - thanks!