Private deals are facing interruptions due to new economic risks, while “shelter in place” limitations are rendering it impossible to assess startups face-to-face in the same physical setting.
Large cities are in lockdown mode, with San Francisco and the greater Bay Area experiencing a “shelter in place” order. Meanwhile, New York City is believed to be headed toward the same move, while some global travel bans are still active. And, in the markets, the S&P 500 finished out Wednesday nearly 30 percent under a record it set in February.
Propel Ventures General Partner Ryan Gilbert said per the report, “I don’t see too many term sheets being issued in the next two to three weeks until there’s more clarity. It’s certainly drying up — people are worrying more about themselves and their families than they are about pitching VCs.”
Valuations in tech are based on expansion going forward. Investors might lose faith that high-growth paths can last as businesses encounter a recession risk and shops that are not vital stay shuttered.
Stocks of firms that are publicly listed are also plummeting, which is said to make it challenging to explain a high multiple on a private upstart of a like kind. Pitchbook Director of Research Nizar Tarhuni said per the report that investors are “placing greater emphasis on sustainable revenue growth and profitability, while telling portfolio companies to reduce their burn rates.”
The news comes as venture capital firm Sequoia Capital cautioned in an email to entrepreneurs that the coronavirus could possibly bring about a “prolonged” worldwide economic slowdown. Sequoia noted that the outbreak could fundamentally change the world’s business landscape.
The “Coronavirus: The Black Swan of 2020” editorial advised firms to begin considering saving cash, cutting the cost of items, and revamping sales forecasts.