Venture Capital

The Impact of Covid-19 on the Early-Stage Investment Climate

500 Startups is a global venture capital firm with a network of startup programs headquartered in Silicon Valley. The firm has invested in over 2,300 companies via its 5 global funds and 15 thematic funds dedicated to specific geographic markets and verticals. Its 100+ team members are located in 20 countries around the world in order to support the 500 Startups global portfolio of investments which spans more than 75 countries.

There is a lot of uncertainty about how COVID-19 will change the startup investment climate. 500 Startups, a leading global venture fund and seed accelerator, decided to survey its investor community to get a sense of the impact the current pandemic is having on startup investment activity.

139 members of the startup investor community, who identified primarily as venture capital firms (40%) or angel investors (35%), responded to the survey and said that the Covid-19 health crisis will indeed have an impact on early-stage investment activity. 

The majority of investors suggested that Covid-19 will have a negative (32%) or somewhat negative (36%) impact on early-stage investment activity in 2020. When asked how long investors believe the impact of COVID-19 will last for the early-stage investing community, most believe the impact could last between one and two years.

While many of those surveyed have not yet decided how they will change their investment strategies, 53% of respondents said they plan to invest in the same stages as before the crisis. Furthermore, 26% stated they will continue the investment allocation planned prior to the Covid-19 outbreak.

The survey polled respondents on whether they have an increased interest in any specific industries affected by Covid-19, and the results showed an increased interest in investing in sectors such as healthcare (46%), remote work solutions (42%), logistics (32%), and productivity software (28%).

Many venture capital firms are also offering resources and guidance to startups during these tumultuous times. When asked what advice investors are giving to startups to navigate the current situation, the most common recommendation was that startups should aim to reduce cash burn and increase runway as quickly as possible. 

While many startups may have already mapped out 2020 plans, investors are suggesting that now is also a good time to reevaluate operations to reduce costs. Additionally, many investors are suggesting that startups make customer retention and closing any open deals a priority in the short term.

According to Crunchbase, “Earlier indications of funding cutbacks may be more easily seen for smaller rounds at early and seed stage, when sought-after deals come together more quickly.”

However, it is still difficult to track because reporting delays are also more frequent at the early stages. Forthcoming quarterly figures may provide additional insights into just how much Covid-19 is impacting early-stage investing and whether or not VCs are writing fewer checks or holding funds for follow-on rounds and existing portfolio companies. 

For more details on how the investment climate might change with the outbreak of Covid-19 and to download the full survey results, click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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