This week alone, I have heard from two different companies that had pitched me stories they were holding off on announcing “in light of COVID.”
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Last week, Sequoia Capital distributed a memo to founders and CEOs of its portfolio companies about the worsening economic situation as coronavirus spreads, CNBC and many other media outlets reported.
I’ve also seen posts all over Twitter from people cautioning about a slowdown in VC funding and reacting with concern to the tumultuous state of the public markets.
So I decided to ask around myself.
I didn’t get as many replies as I expected. Perhaps folks just don’t want to share their revised strategies. Perhaps they’re still trying to figure it out. I’m not sure, but for now, here’s what Morgan Flager, general partner of Austin-based Silverton Partners, told me on the topic. (For those that don’t know, Silverton Partners is arguably one of Austin’s most active early-stage VC firms with $384 million under management.)
Warning to executives
Flager shared with me some highlights of a note he sent out to key executives across Silverton’s portfolio this week.
Essentially, Flager said it is “prudent to assume that fundraising velocity will slow from the fast pace we’ve seen as investors take time to process the new macroeconomic environment.”
He pointed to what transpired economically in 2001 (after 9/11) and 2009 (after the economic downturn) as a reference to what people should likely expect to happen this year.
“Most investors react to uncertainty with increased caution. Travel restrictions will also make it more difficult to meet investors,” Flager wrote.
Additionally, he said that valuations will likely see pressure from multiple angles.
“First, volatility in the stock market and declining multiples will inevitably play through to the private markets. Companies that haven’t ‘gotten the memo’ and are still recklessly buying growth and burning lots of cash doing so will increasingly be viewed as risky and will see that risk premium reflected in their value,” Flager continued in his note to executives across Silverton’s portfolio. “In some cases these businesses will not be able to attract additional investment at any price. Do not be one of them.”
He also suggested that if a startup in Silverton’s portfolio is in the middle of closing a round or in the latter stages of a fundraising process, “it may make sense to take additional capital.”
“More runway in this environment could mean the difference between life and death for your business,” Flager said.
In September 2019, we covered how Silverton had filed paperwork signaling its intent to raise not just one, but a pair of new venture capital funds. The firm was reportedly aiming to raise $120 million for its sixth fund, as well as for a $20 million “opportunity fund.”
In May 2018, we reported on the firm closing on its fifth fund, in which it raised $108 million in an oversubscribed round of funding.
Silverton has made 131 known investments over its 14-year lifetime leading at least 42 of them – and had 28 known exits. Startups it has backed include insurance comparison marketplace The Zebra, as well as WP Engine and Billie, a woman’s shaving products startup that was recently acquired by P&G.
Some of Silverton’s more recent investments include participating in Austin-based last-mile delivery startup Fetch’s $10.5 million Series A and cybersecurity company SpyCloud’s $21 million Series B raise (which was led by M12, Microsoft’s venture arm).
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