The coronavirus pandemic has changed everything, including how companies raise venture funding. It has become a slower, shakier process, in part because VCs and startup founders can no longer meet in person.
“Much of communication between people is non-verbal,” Russ Wilcox, a partner at Pillar VC, told Built In.
Specifically, he said, a lot of emotional and tonal information comes through in our vast catalog of microexpressions; to date, psychologist Paul Ekman has counted more than 3,000 of them.
“Sometimes, you may know how a person is feeling before he or she knows” through these fleeting expressions, Ekman told the Guardian. “You may also be able to recognize that there is a chance a person is trying to diminish or conceal her expressions.”
This type of information can make or break an investment deal. But flickers of emotion — a raised eyebrow, a suppressed smile — are invisible over the phone, and hard to interpret over video chat, which involves a slight lag and can be “choppy,” Wilcox noted.
“In the previous three recessions, technology adoption has increased.”
“There are also things that you learn when you’re with a team in a room together,” Jackie DiMonte, vice president at Hyde Park Venture Partners, told Built In. “Just how people interact.”
Loss of these subtle cues makes it harder for VCs and founders to develop trust. It also makes it harder for VCs to assess companies.
“You can’t walk a shop floor together and have someone point out, ‘Hey, this machine has been acting up. That’s what your money’s going to be used to do — fix this thing,’” Wilcox said.
But that doesn’t mean VCs aren’t investing during this time. Quite the opposite.
“In the previous three recessions, technology adoption has increased,” Candace Widdoes, chief operating officer at Plug & Play, told Built In, referencing a recent McKinsey study. Companies invested in new software in an effort to boost efficiency and adapt to a new environment — and they probably will again.
So it’s no surprise that VCs keep writing checks. But the investment process, and the market, have changed. We spoke to Wilcox, DiMonte and Widdoes about how the coronavirus pandemic has affected venture funding and tech startups so far — and what might happen next.