May 22, 2021 - Economy

VC not only survived, but thrived in 2020

Illustration of a black swan and a dollar bill.

Illustration: Aïda Amer/Axios

The venture capital industry successfully adjusted to the new normal, and even thrived, after an initial period of pandemic paralysis.

Why it matters: Many feared the crisis would wreck large swaths of startups. Instead, 2020 birthed a new cohort of companies shaping how we live and work in entirely new ways — especially since they matured during a period of societal shifts.

Flashback: On March 5 of last year, VC firm Sequoia Capital sent a memo predicting that COVID-19 "is the black swan of 2020" and that companies need to brace themselves and "question every assumption."

  • The firm didn’t necessarily recommend drastic moves or layoffs, but did issue a strong nudge to "reassess," according to partner Roelof Botha.
  • "It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained," Sequoia wrote. "It will take even longer for the global economy to recover its footing."

Reality check: The black swan swam on by.

  • "I think what couldn’t have been predicted is the swiftness and extent of the government response," Botha tells Axios.
  • "Consumer pocketbooks were lined way better than we assumed. ... People have money so we see it in the [Square] Cash app and we see it in the [Square] seller business," adds Botha, who's on the fintech company's board.

By the numbers: Venture capital investing had a record year (more than $130 billion), besting even the height of the dot-com boom, per the MoneyTree report.

  • However, the number of deals (6,305) didn't reach the exuberance of 2000's 8,803 venture investments.

The new reality: VCs are continuing a lot of their pandemic-era "Zoom investing."

  • "Despite all the hoopla, I remain surprised by how normal deals felt after just a month or two of settling into remote processes," explains Inspired Capital principal Chris Brown.
  • Another byproduct has been deal-making velocity. Costanoa Ventures principal Amy Cheetham says that routinely, if she meets a company on a Thursday, she’s expected to make a decision by Monday.

Yes, but: The in-person element isn’t going away entirely — whether for due diligence or among VC firm colleagues.

  • "Being willing/able to travel to meet folks during the past few months (including internationally) was also a nice way to stand out on competitive deals," says Full In Partners managing director Elodie Dupuy. "Building a close relationship with entrepreneurs is the best way to win deals, and meeting them in person is the best way to do that."
  • Sequoia's team is still allowed to largely work from home, but Botha points out that the firm still values in-person brainstorming sessions. In fact, its "black swan memo" was born during one of them, he adds.

The bottom line: Venture capital braced for the worst, but instead got the best.

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