Greycroft has been busy. A month ago, I noticed a lot of the funding stories I was writing listed the New York-based venture capital firm as either the lead investor or as a participant in the fund raise.
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In the first half of the year, Greycroft made 29 investments in U.S. companies, placing it as the fifth-highest in terms of activity, according to Crunchbase data. The company’s top investment was in mobile game publisher Scopely, which raised a $200 million Series D announced in mid-March.
Greycroft is not only investing money, it also is raising it. The firm filed a Form D with the U.S. Securities and Exchange Commission at the end of July with the intention of raising a $300 million fund named Greycroft Partners VI.
I wanted to learn more about what is driving Greycroft to continue to make all of these investments, and if anything has changed in the current startup funding environment.
First I spoke with co-founder and partner Ian Sigalow, based in New York, who told me there are probably more investments coming. He was right: Just after our chat, investment announcements for Branch Financial and Palmetto Clean Technology, to name a few, came through, and I wrote about yet another investment in WayScript this week.
I then spoke with Alison Lange Engel, a venture partner in the Los Angeles office, who said the first half of the year was a “fascinating time on so many human levels and professional levels.”
The firm was busy helping its portfolio companies, many of which had enough capital to navigate the slowdown, while startups in some sectors saw five years of growth in two months and needed guidance in how to scale quickly, she said.
“Digital, grocery and household goods, the real-time economy, food and beverage, could not fulfill the demand,” Engel said. “It was fascinating seeing the many years of growth.”
Sigalow had observed a combination of some funding intentionally delayed and a lot of activity on new deals. Some deals are happening as usual: They still take about 60 days to close. For example, the Medly Pharmacy financing was announced in July, but Sigalow had closed the deal back in March.
“We had a lot of activity in the first half of the year,” he said.
When the lockdown happened in mid-March as a result of the global pandemic, Sigalow said the company followed three playbooks to ensure it bolstered the balance sheets of its portfolio of 175 companies.
“We are opportunistic, so we were looking at businesses prior to the lockdown, but for whatever reason couldn’t put money to work. But we could during COVID-19,” he said.
The first playbook: Spending time with its existing portfolio to identify companies where the investor wanted to increase its position. In some cases, convertible notes were used because they are faster, though most of the time Greycroft uses priced equity rounds. For example, Medly was an existing portfolio company where Greycroft increased its position, Sigalow added.
The second playbook was for companies outside the portfolio, but were known pre-COVID, reaching out to them to find ways to put money to work over five or 10 years.
“They were great companies, but for various reasons we couldn’t come to terms, such as their valuations were too high,” Sigalow said. “There were five companies, or about a third of our deal activity, where we had not funded them before, but participated in their new rounds.”
The third playbook was “business as usual,” looking again at companies outside the portfolio. Where most investors would have stepped back, Greycroft pursued deals, even remotely, he said. The lockdown environment benefited the firm because when founders heard Greycroft was investing, they wanted an introduction. At the same time, the firm wanted to be on the list of considerations, he added.
Finding innovation in a pandemic
With fewer events going on, there was a reasonable amount of serendipity, he admitted. Sigalow ended up sitting next to Pie Insurance President Dax Craig at an event and Greycroft became a part of Pie’s $127 million Series B in May.
“It’s a little bit like success begets success and activity begets activity,” Sigalow said. “In this environment, there is lower serendipity because there are fewer events and things are more scripted. It tends to benefit longer-term investors. And we’ve seen a lot of great companies.”
Industries in which they are seeing innovation include fintech, insurance, e-commerce, online pharmacies and, of course, food and grocery delivery. Prior to COVID-19, grocery stores were 1 percent online, and Sigalow expects that to go as high as 30 percent, depending on how aggressively the individual store grows, as well as the industry itself.
Meanwhile, Engel is following startups considered the “future of work.” These are startups working on collaboration and developer tools, such as messaging, video conferencing apps, meetings, project management, and connecting remote employees. There are a lot of them on the market, and startups can often get up and running in a few months, gaining traction quickly, she added.
They are also looking at companies with the ability to go global.
“We try to identify companies that can be globally dominant,” Sigalow said. “We look for if it can expand beyond a single country’s geography. If you can do that, you can be in almost any market.”
Closing deals virtually was new behavior for Greycroft, both Sigalow and Engel said. However, they understood that most entrepreneurs wake up having a positive impact on the world and want to drive sizable change—a passion that doesn’t subside in a crisis, Engel said.
Greycroft is still on a mission to find those entrepreneurs with “audacious” ideas, believing that in challenging times innovation thrives. Engel was quoted in an April LinkedIn interview as saying that Microsoft and Apple were founded during the 1970s recession, while Square, Slack and Uber were founded during the economic downturn in 2009.
“If you look at history, incredible innovation was founded in times of market turmoil,” Engel said. “There is history around this dire situation, and amazing innovators will come out of it.”
Headshots courtesy of Greycroft
Illustration: Dom Guzman
Editor’s note: This article has been updated to reflect that Greycroft closed the Medly Pharmacy investment in March.