Poll of NYC VCs shows hope for early-stage startups
April 19, 2020at6:15 PM
by Chris Young
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Last week, our team took the temperature of the VC ecosystem by surveying 33 early-stage VC funds in and around NYC. The survey looked at everything from investment activity in the near term to the importance of face-to-face meetings to what percent of a venture firm’s portfolio companies were at cash flow risk over the next 3-6 months. The results reveal a market that will be predictably lean for startups in 2020. But they also show that early-stage NYC VCs are more optimistic than expected.
Open for business
91% of the early-stage NYC VCs we polled indicated they are still actively investing. 33% went so far as to say it was still business as usual. Only 9% have stopped investing in new deals altogether. Almost all, however, suggested there will be some kind of slowdown when it comes to investments in 2020. This is particularly good news for founders, who ranked VCs drying up as their number one fear post COVID-19.
In terms of total number of investments made, most of the VCs we polled expected to see a 30% decrease this year. This somewhat modest correction was consistent across multiple fund sizes. The community, in general, normally had an investment cadence of around 10-11 investments per year. Now, most project 7-8 investments in 2020. Additionally, whereas only 27% of investors surveyed were expected to make 5 or fewer investments per year before COVID-19, now 55% of those surveyed indicate they’ll make 5 or less investments this year.
Almost all the NYC VCs we polled expressed some level of comfort in investing remotely, which provides a glimpse into just how these deals will get done. Early-stage investors who are usually adamant about meeting founders prior to investments, seem to be more open-minded to virtual video meetings as an alternative to face-to-face meetings. Of those we surveyed, roughly half felt strongly about the importance of in-person meetings. 48% said in-person meetings are a very important precursor to an investment decision, while 46% said that, while they try to meet in person, they don’t require it.
With most publicly traded SaaS companies down 40% or more this year, it’s not surprising that early stage valuations are also getting dinged. Just over half of the NYC VCs we surveyed expected valuations to drop between 20-40%. A little over a third indicated valuations would likely go down 10-20%. Only one investor felt valuations would stay the same.
It also comes as no surprise that this community of early-stage NYC investors are focused on businesses that are both recession and COVID-19 resistant. Those include telehealth and e-commerce companies as well as future-of-work platforms and infrastructure. Investors suggested businesses in the travel, hospitality, physical retail, restaurant, and real estate verticals will all face significant headwinds in the near term. In the new normal, businesses in those categories will need to have unusually strong balance sheets and a compelling picture of the underlying business to see much traction over the next 6 months.
Follow the money
With a recession now looming, another important question is just how bad things will get for each fund’s portfolio. The overwhelming majority of NYC VCs we polled (72%) indicated that less