Financial Technology Partners recently held a webinar on EMEA-based venture capital amid the Covid-19 crisis. Panelists discussed what actions they were taking to ensure the longevity of portfolio companies and how, if possible, to keep doing business in the region. Katharine Hidalgo reports
Financial Technology Partners (FT Partners) has been holding a series of coronavirus-focused webinars on venture capital in recent weeks, and its meeting discussing Europe, the Middle East and Africa (EMEA) found VC players were as cautious as those in private equity, but were now taking more offensive actions rather than being defensive to the crisis.
The consensus was that the firms were working towards generating enough cash to secure the financial positions of portfolio companies for 18 months or until the end of 2021.
Balderton partner Rob Moffat said: "We've been ensuring they have enough equity, throwing on debt lines, doing cost cuts and moving around internal finances."
Managing director Aaron Goldman of General Atlantic agreed: "Eighteen months doesn't seem like an unreasonable threshold. Founders need to think hard about what their cost structure looks like and what they need to do to make capital decisions."
Speedinvest's lead partner, Stefan Klestil, said his portfolio is working on the same timeline, looking at hiring freezes, salary reductions and taking advantage of the government programmes available across Europe. The government packages surrounding loans and grants for the payment of furloughed individuals was an aspect of the economic situation that he said differs from the US. "But those that have high cash burn rates will need to raise funds in the next three to six months and may need internal assistance from us. We may need to create term sheets that are also founder friendly."
However, Sean Park, founder of Anthemis Partners, cautioned against founders making rash decisions. "In this crisis, weeks are like months or quarters. There's more information coming out daily that affect each company's growth prospects and we want to delay the time when we can make more fundamental adjustments to as late as possible."
Most panellists agreed they were unlikely to make fresh investments in unknown companies over Zoom, but showed little resistance to the notion of investing in existing portfolio companies, or making contributions that had already been approved by their investment committee.
Speedinvest's Klestil said: "We have closed a few deals in the last week, but discussions started long before Covid-19 came about. We have a policy like most VCs, that a few partners have to meet the founders in person. For new investments, I'm pretty sure there are going to be fewer deals in the coming months."
TCV partner John Doran agreed: "If we've never met them, it's hard to see how we could make that investment. The level of detail we get into when making a deal includes interviewing the entire C-level team and sometimes below that."
The panellists also touched on the crisis's effects on valuations, largely dispelling the idea that all companies were going to witness a wholesale drop in valuations. The consensus was that the bifurcation between high-quality companies being able to raise quickly and at high valuations, with the lower quality ones raising more slowly, was going to widen further. Anthemis's Park said: "Companies that are great are going to start pulling away from the pack, which will make it more competitive in terms of valuations."
Doran said: "If you're an A* company, your valuation is likely to not have gone down in the last four weeks."
The panellists all agreed that the venture capital universe was going to be altered forever by the coronavirus crisis. Antemis's Park said: "We think this crisis will get rid of some of the earlier inertia that was stopping some macroeconomic and technological trends playing out. The world post-Covid-19 should be friendlier to more fintech-focused companies than their incumbent competitors."
Deal is the first add-on since Main Capital acquired it in June 2019
Fund invests in North American and European businesses operating across the financial services sector
New funding will be used to accelerate growth in new markets such as Asia-Pacific and Latin America
Team includes partners Oliver Rochman and Rob Mailer, and two associates