The pandemic was not the disaster that venture capitalists had first expected. It has nevertheless transformed what they do
s’ funds were closed-ended, meaning they distributed returns to investors, usually pension funds, endowments and other long-term-oriented investors, within seven to ten years, after taking a cut of their own., often taking a seat on a company’s board. They offered a wealth of experience and access to a network of contacts, introducing startups to professional chief executives, for instance.
But funding is also reaching new terrain. In 2002 84% of venture activity, in terms of value, took place in America. That share is now about 49%. China’s share grew from below 5% in the 2000s to 37% in 2018, before its tech crackdown brought it down to nearer 20%. Capital has instead sought greener pastures in Europe . Keith Rabois of Founders Fund, a vc firm, argues that, if done right, investing in less heated sectors can help produce attractive venture returns.
For many old-school venture capitalists, this new competitive world is unsettling. “We need to react,” acknowledges Roelof Botha of Sequoia. Though rising valuations bolster returns on current portfolios, they dry up future returns. Crossover funds are less price-sensitive than traditionals. And for later-stage startups, investors’ money is more fungible, says Mr Giuffrida. It matters less who is investing than how much they are willing to pay.
The time taken to strike a deal has shrunk from several weeks to days, if not hours. Zoom has changed the nature of fundraising. Biodock, a microscopy startup, had ten calls withs scheduled in a day, which gave it more power in negotiations, reckons Michael Lee, its founder. Founders receive “refreshes”, top-ups of equity during fundraising rounds. To get ahead of the rush, some investors are offering companies cash even before they start looking for more funding.firms will be competed down.
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