Shelter in Place at True (May 2020 Edition)

There’s been a lot of discussion on whether investors are “open for business” during the current Shelter in Place environment and I wanted to share some observations based on my experience at True:

1.

Since the start of Shelter in Place, our firm has made two new investments where the investment lead on our team wasn’t able to meet the company’s Founder in person

In one case, we had started discussions with the company prior to Shelter in Place, but travel restrictions had started before they could meet in person

In the other case, we were introduced to the Founder after the start of Shelter in Place and they ran an entirely virtual process

2.

Both companies were introduced to us by Founders in the current True Portfolio – each person had known the person they were introducing for a number of years and the referrals were very positive

Both companies were in categories where we had deep experience – so we were more easily able to diligence the opportunity through existing Founders in the True portfolio

3.

In both cases, the True deal lead spent more time talking with the Founder than they probably would have normally – text messages + phone calls in addition to Zoom meetings with others on our team.

I think this change will continue going forward – there is no substitute for working through problems with someone to understand how they think, how they handle feedback, and how you will ultimately work together

4.

We already tap into the ecosystem of existing True Founders to find additional potential references for Founders of new potential investments – in both cases here, we did additional work to find as many other points of mutual connection as possible

One company was based outside the Bay Area – in a market where we have a number of other investments – and a number of those existing Founders knew this company and its team – and were able to provide additional background on them

5.

We’re excited about a new opportunity now

This is a Founder that we’ve previously backed and know very well

He’s been an active member of the Founder Community for years and he’s in the process of starting a new company at the intersection of two spaces we know very well

Our lessons from 3 + 4 above are already impacting our process in a positive way – we’re spending more time thinking through some of the early opportunities and digging in on some of the thorny questions around the go-to market plan. 

We’re tapping into our network to help vet others on the team and potentially find others to fill the gaps they’ve identified.

We’ve already met in person prior to Shelter in Place – so this is less of a concern here – but I like that our recent experience is helping evolve our investment process and will hopefully make us better investors over time

6.

Going into Shelter in Place – I think our group was mixed on whether we’d be able to make an investment without meeting a Founder in person first

The second investment described above really broke the glass on our thinking – it felt right and you can now see us developing the muscle on how to do it well

I don’t think we’re going to rush out and double investment pace – but when we find high quality founders working on ambitious projects in markets raising our type of money at our type of price – I think we will continue to be aggressive 

7.

As I talk to other investors – I think this reflects the broader market – things have slowed down to give investment teams the time to figure out their new process – which I think may be the new normal for a while

Because even if Shelter in Place ends tomorrow, I think the process of returning to the office will be complicated – so more nimble groups and newer firms may have an edge for a period of time here

8.

For follow on rounds in our existing portfolio – we have 4 teams in a fundraising process – 3 of which have signed or received term sheets

The process has become more bespoke – smaller target investor lists, more introductions via phone conversations to confirm the company is potentially a fit and the new potential investors firm is in the mental space to lead new investments

This process has been most successful with companies that have cash on their balance sheet and want to go faster or companies where the tailwinds from the current market conditions are very positive and they are being pulled to go faster

9.

If a company is running out of money, the most likely source of capital is its existing investors.

Syndicate and co-investors always matter – these types of moments make that clear

This will work for some companies that do just need one more turn and could see success on the other side. We are also likely to see a high number of companies not make it – some number of which could have made it in a different environment 

10

Inside our portfolio, certain markets have been negatively impacted – but certain markets have definitely seen an acceleration in customer interest and commercial traction

These companies were riding existing trends in consumer + enterprise buyer behavior – this dislocation has dramatically accelerated these shifts and pulled demand in far sooner than I think anyone could have predicted

The revenue or business growth will likely be more volatile over the next period on our way to a new normal (TBD) – but people who never bought groceries online or would have been the last to start collaborating on music virtually can only use these services right now – and I think a lot of them never go back

12.

In closing – the startup and venture capital market is built up of different players, with different business models, and different team bias – so I think it’d be difficult to make any sweeping statement about this market – this is simply data from one partner at one firm

One thing I think about a lot is a quote from my partner who says “work with people you know, always know more people” 

In times of high uncertainty – reducing risk on things you can control (Ie working with high quality people you know and trust) – is the even more important than usual

Another thing I think about is True Ventures in 2008 + 2009 – the firm had just closed their second fund and decided to accelerate new investment pace (by deal count) and doubled down on its best investments in Fund 1 

The first investment in Fund 2 was 1.75m stake in a pre product company called Fitbit (which as an aside – had been introduced to us by a founder we had known for a long time – and despite involving a device, touched a lot of the things my partners had worked on previously in the social web – ie Goodreads and Meebo)

Fund 2 is still a top performing fund in that vintage and I believe that work set up the firm to be a leader in the seed + early-stage venture capital market

I don’t know which new Series A firms will be most successful on the other side – I do know that a number are being more aggressive with our portfolio today – and thinking about how they could win investments and take market share in this current moment

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