In 2019, Garden State-based VC funding rose to almost
“Nationally we are seeing a trend of deal flow moving to new extremities of high-cost metros. Startups like hip, low-cost office space,” Silverman said. “As cities like
Some news isn’t so good. “In the near future, VC valuations will probably take a dent as a result of economic dislocations related to the coronavirus,” Casabona Ventures LLC Founder and Managing Director
Casabona doesn’t think the COVID-19 pandemic will have a long-term effect on VC activity. “What we’re seeing is an immediate issue, which will likely be solved by a large pharmaceutical company with deep research and manufacturing resources,” he said. “So I’m staying the course regarding the kind of technology that I’m investing in.”
In the short term, he added, “the stock market plunge and the overall economic slowdown could put a hold in investor decisions. Right now, for example, I’m keeping my available cash on the sidelines instead of deploying it. I want to see how the market reacts in the meantime.”
The social distancing spurred by the COVID-19 threat is another issue. “It’s not exactly crippling,” he noted. “For a long time, our initial contacts with potential portfolio companies have been by phone calls, digitally through the computer, or we’ve done teleconferences.”
Still, he added, “Now we’re maximizing the use of technology when it comes to teleconferences, like using Zoom for Web-based conferencing. Nothing beats a face-to-face meeting, but that won’t kill an investment in a good company. We’re just exercising more caution in this uncertain atmosphere.”
Early- or seed-stage companies, which are typically funded by angels and smaller VC firms are particularly likely to feel a pinch, according to
Investors will eventually return, he added, but they’re likely to be more selective.
Spreading the pain
Private equity, which usually focuses on more mature companies, is also on pause, according to published reports. “Investors are taking stock and evaluating risk,” Barron’s reported in a recent article. Added a
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Venture capital or bank financing?
Venture capital can be attractive for startups and other growth-stage companies because it avoids the costs and restrictions of a traditional loan. But there’s another kind of cost, since business owners have to give up some equity in their company.
“Early stage companies often have a hard time getting bank financing,” said
Also, most banks “aren’t really set up take the kind of risk a startup represents,” he noted. “Although bank financing may work at a later stage. One option at that point is venture debt,” where a bank or other lender receives warrants, or the right to purchase shares of the debtor’s stock at a certain price.
Even in the low-rate environment that’s been around for the last few years, venture funding retains some attractions, according to
The downside, he added,” is that you give up equity, and a venture capitalist understandably wants the most equity they can get for the lowest valuation possible. That means founders have their ownership stakes diluted sometimes by a lot.”[/box]
In general, investors get “a little more timid in uncertain economic times, like we are in right now,” cautioned
Wisniewski said he thinks VCs will continue to be active, especially since valuations may fall a bit in order to get deals signed. At
A red flag
Until now, VC had been jumping, noted
“About 10 years ago, it was difficult to get 30 people together for a VC conference,” he recalled. “Now it’s usually standing-room only.”
But the pandemic slowed that down, at least temporarily. “Demo days and pitch days may be delayed, but they won’t be shut down,” said Hakakian, referring to get-togethers where startups pitch their business to investors. “The long-term strategy of investors is still on track, but there could be a pause while we switch over to different ways of contacting each other.” His plans include a teleconference where six companies will present their ideas.
Soundboard has about
The COVID-19 crisis may slow down some venture capital deals, but crowdfunding or raising small amounts of money from a large number of people, mostly through the internet has jumped, according to
An entrepreneur can generally go after “rewards crowdfunding,” where the business owner will exchange a product or service, typically at a discount, in exchange for funds; or “equity crowdfunding,” where funders receive shares of a company for their money.
“Post-coronavirus, we’ve seen a two-times jump in the number of women coming to us from startups,” she said. “It’s exacerbating an existing drawback to venture capital: other than certain tech categories, very few small businesses were able to get venture funding. So more everyday brick-and-mortar and other entrepreneurs are turning to crowdfunding.”
Besides the funding platform, Cahn said iFundWomen also offers advice and access to grant opportunities. Her organization also offers networks, like iFundWomen of Color.
One business, a
CREDIT: Martin Daks