Sierra Ventures’ Perspective
First and foremost, our hearts go out to you and your loved ones during this difficult time. We think about you, our community, often and are sending you all good thoughts to stay safe, healthy, and optimistic.
On a macro level, what is happening now with the coronavirus pandemic is something that has tremendous human impact, resulting in tragedy and human hardship. It is a once in a lifetime event that we believe the world will learn a lot from. We are hopeful that the event will help countries and communities get better prepared knowing that something like this can happen on a global scale. The playbook will evolve and countries and people will learn from one another as we navigate this uncharted territory.
When it comes to investing in this environment, we are very much continuing to deploy capital and do what we love – find and support great entrepreneurs to build world-changing businesses.
We believe that Seed and Series A investments, our sweet spot as a firm, have the potential to do really well during this time. As we’ve seen before, some of the best companies were born during the 2000 and 2008 recessions. There are a few reasons for this:
- The best entrepreneurs show up and persist through anything
- Companies don’t get overcapitalized
- Teams are pushed to spend money wisely
- In order to survive, companies need to find true product-market fit
A good analogy: the best wine vintage is when there’s a drought. The roots have to work harder to find water and grapes have more intense flavor. It’s like that in Venture too. The quality of the entrepreneur becomes phenomenal during trying times.
We do understand that there is a large initial shock when things like this happen. Markets and operations of startup companies are forced to adjust quickly and we are dedicated to working with and supporting our portfolio companies during this transition.
We believe we are moving into the phase between shock and adjustment right now, and we are hopeful that 2021 will bring us closer to the “new normal”.
A couple of trends we’re seeing in Venture right now:
- Later stage valuations were trending dramatically up and to the right without the typical correlation to fundamentals. We think valuations will become more traditional and deal quality will rise.
- Only the most resilient and most passionate entrepreneurs will stay in the fray and those companies will continue to raise during this time.
- There will be a premium for capital-efficient deals. Investors will be looking harder at how much capital will be consumed in the next 18-24 months.
- There will be more syndication amongst VCs. We’ll see more collaboration between firms and this is something we’re used to and welcome.
- We expect that early-stage VCs will probably continue to invest amounts consistent with the past, but we expect later stage check sizes to drop.
- Public “crossover” investors and corporate investors who have actively participated in later stage rounds over the last few years, will pull back sharply.
- Enterprise valuations of later-stage companies will change due to the shift in the market, so preparing companies for cash preservation is increasingly important.
We will continue to invest within our Thesis into early-stage companies building next generation enterprise and emerging technologies. Some specific areas we’re looking at as a firm that are relevant to the current climate are:
- AI/Data Technologies to solve current problems
- Vertical SaaS
- Health Tech
- Online Education
- Online Retail
- Consumer Online Trends
- Remote Work Technology
- Emerging Technologies
We’d love to hear from early-stage entrepreneurs and VCs working on technologies in these areas and other sectors within our Thesis.
Wishing you all health and growth during this challenging time. Feel free to reach out to our Team with any questions. We’re all in this together.
The Sierra Ventures Team
Tim is a former serial entrepreneur, having built two successful software infrastructure companies: Scopus Technology (IPO in 1995) and Octane Software (M&A – Epiphany $3.2 billion). He joined Sierra Ventures as Managing Director in 2002 and focuses on Big Data and Artificial Intelligence. Since joining, he has taken two companies public (Sourcefire – FIRE and MakeMyTrip – MMYT), and has been responsible for several M&As. Tim holds a BA in Electrical Engineering from PEC University of Technology (India) and an MS in IEOR/Robotics from Virginia Tech. His passion (outside of his family and companies) is soccer.