VCs will look for startups with big ideas and sensible financial management.

Mike Abbaei, of Naples Technology Ventures, peers into the VC crystal ball in a guest article “How investment will change in a post-pandemic world,” published in Venturebeat.

In Abbaei’s view, the coronavirus pandemic is a traumatic and transformative event similar to 9/11.  The event forever changed our approach to air traffic, travel reservations, and airport security. Similarly, the pandemic will usher in permanent changes in our lifestyles and business operations, healthcare, security and the regulatory environment.

And these massive changes, that might have taken years, will telescope through in a matter of months. These changes will affect how we consume products and services, and businesses will have to adapt quickly to meet the new consumer expectations and marketplace realities.

[In a telling example, DailyAlts wrote about how Origin, a startup manufacturing 3D printers, pivoted in a matter of weeks to 3D-printing coronavirus swab test kits. Origin already has orders for half a million of these.]

VCs and the (post-pandemic) new normal

Venture capitalists will have their hands full with assessing the effect of the pandemic on existing investments, as well as deploying ‘dry powder’ in a vastly changed environment.

Abbaei’s article is concerned more with the latter.

New businesses, new models

Post coronavirus, VCs will be preoccupied with finding businesses that address the new behaviors and consumer demands post-pandemic.

“The next decade will belong to those that rethink the role of human contact within a transaction and prioritize efficiency, adaptability, and sustainability,” says Abbaei.

Key focus areas could be:

• Ecommerce (contactless payments, virtual showrooms)
• New social norms arising from ‘distancing.’ (Think online conferencing, video-calling to address ‘work-from-home,’ remote access requirements)
• Online healthcare – telemedicine and telehealth
• Digital insurance
• Online travel experiences
• SaaS businesses (Cloud-based, operated remotely, contactless, scalable, recurring revenue)

Reasonable valuations

“We’re entering an age of extreme conservatism,” says Abbaei. “The public markets are weathering a severe hit, and that’s going to reverberate across all private investment markets as well.”

Valuations will take a hit of as much as 30-50% compared to a year ago because of the new reality: investing terms will now have to be “investor-friendly” versus the earlier norms of being “company-friendly.”

Lean and mean operations

VCs will look for startups that have big ideas together with a lean and mean business model.

“The era of long-shot investments in companies that burn cash fast and have yet to clarify the timing and way in which they’ll achieve financial success is over,” says Abbaei.

The fittest companies will survive, and investors will gravitate towards businesses that have predictable revenues with low upfront investments.

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