The Virtual VC
Partnering and investing during the pandemic
Months into the Covid-19 pandemic, one of the top questions on entrepreneurs’ minds is whether venture capital firms are still making investments. The short answer is “Yes,” but the details are important enough that the partners of Greylock thought it was worth exploring in greater depth.
On the latest episode of Greymatter, Greylock investors Reid Hoffman and Saam Motamedi sat down with Blitzscaling co-author Chris Yeh, who guided a discussion of how Covid-19 has – and hasn’t – changed how we invest at Greylock. You can listen to the podcast here.
Below are key highlights from the conversation.
What aspects of the business remain the same, in spite of the pandemic?
Reid Hoffman: “Just because we’ve got this thing – which is, of course, a massive asteroid impact to society in the world and it’s very weird – work doesn’t slow down. That’s still that desperate need for new companies, new products, new services, new jobs, new industries.”
Saam Motamedi: “If you look at our investment pacing, there hasn’t been any drop off post-COVID. And that’s both investments in new companies as well as putting more capital into some of our existing companies. I think one of the things that’s interesting is the crisis just creates new opportunity, and creativity, and entrepreneurs.”
What are the biggest changes in the way you interact with entrepreneurs now?
SM: “A few things I’d say have changed other than the obvious ( which is that you’re not in-person; you’re in video). One is it’s a little bit more difficult to truly get to know someone and get a sense of their team, and the energy, and passion, and dream. And so we’ve done a number of things to try to replace that in a virtual world. One thing I’ve done on new investments I’ve made is explicitly spend time on video with other key people in the team beyond just the founders to get the sense that we’d normally get from going into someone’s office. Another piece is make it easy to be vulnerable, and have that shared vulnerability with the entrepreneur. Whether that’s breaking bread virtually, or sharing something that you have in your house that’s a personal item when you’re both on Zoom. There’s different tactics we’ve been using to build that same level of trust over video.”
RH: “Investing isn’t just an intellectual exercise. We don’t just have to answer things like ‘Do I have a big market? Do I have a good product market fit? Do I have the capabilities and the assets in the team?’ We also have to answer the questions of, ‘Should go on this journey together? Do we have belief and trust in each other?’ Almost all investments go through a valley of the shadow perio, where it’s really stressful, so we have to know if we will problem-solve well together. So part of that is to actually have a bidirectional understanding, a bidirectional relationship, which is a connection you have to work harder at in this new virtual environment. It would actually seem a little artificial, perhaps, if you were meeting at the office the way that we used to. But now, it’s so important to do that it’s worth taking that little bit of artifice to actually open up, and actually connect.”
How has the pandemic impacted the types of people and companies you are partnering with?
SM: “There is an exciting thing that we see when we look over the last few months: we’ve not only made new investments and partnered with people who were already known to us (or who were in the network) but also, we’ve partnered with people who are outside the network. As we (as an ecosystem) have gotten better around how to do this virtually, it actually levels the playing field from a geographic perspective.”
RH: “Now is an interesting opportunity to have more geographic diversity and broader diversity as well. We’re spending more time trying to meet entrepreneurs who are people of color, we’re trying to meet more women entrepreneurs. We ask ourselves wow do we make sure that that’s included in our canvassing efforts. Because in the same way that you have geographic diversity, you may also get some of these other parts of diversity.”
How has the pandemic changed your investing thesis?
RH: “Broadly speaking, all the same world translation trends are the same. But while we’re always looking at a 10-plus year timeline, what’s changed a little bit are what the next couple years will look like. So we are looking for entrepreneurs who have an accelerated way of getting on the market. And we need to know whether they are playing into a trend that is actually in the direction the world is moving to, or if it is just because of Covid-19. For example, we’ve been seeing telehealth expand. So we ask whether it is something that is being accelerated because the market is currently being conditioned for that, or is it because regulation is finally changing because of where we are as a society?
SM: “It also creates new opportunities because people have to adjust to these behavior changes much faster than they thought they would. On the enterprise side, the main thing that’s happened is the acceleration of digital transformation. But we’re taking 10-year digitization roadmaps and compressing them into one to two. That’s had an impact across all the sectors we invest in.”
RH: “Within the consumer side, what’s happening broadly is that suddenly you need a whole bunch of things delivered, and that’s just being accelerated. But we have to ask whether it is something that people are going to keep doing after things go back to normal. And that’s the question in your mind: ‘Is it a replacement? Is it a substitute? Is it an enduring habit?’”
How does the shift in investment thesis impact how you interact with entrepreneurs?
SM: “For many companies, working remotely is a very new thing. And it’s different for all of them – some companies have gone from being all in the office to being all remote, and some are somewhat distributed, depending on where they are in the world and the local shelter in place guidelines. So it’s a new challenge in how you run your teams. We’re spending a lot of time with CEOs, and understanding, ‘Hey, what is your weekly all hands look like now? How do you measure morale? How do you measure productivity and energy across your teams? And how are those things trending?’ And that’s a piece that we spent less time on before the epidemic.”
SM: “At Greylock, we’re very, very long-term investors. And we’re not thinking about the next few quarters, even necessarily the next few years, we’re taking 10 year plus points of views on companies. But we also acknowledge the extreme uncertainty around what the next few quarters and next few years hold for us. So when we do a new financing, we are capitalizing a company to get to a particular set of milestones so that, if needed, they can go back and raise more capital from the capital markets. And I’d say right now, if you want to be prudent, you’d say, ‘Hey, milestones you thought you’d get done in four, six quarters could take eight to 12, or perhaps even longer.’ It all depends on how the world plays out.”
What have been the silver linings during the pandemic?
SM: “It’s a very focusing event. This is true both in terms of understanding where the different pain points exist in the markets, and finding who are the entrepreneurs who want to build. Those pain points get escalated and aggravated. It’s also focusing for individuals. If you’re an engineer, product person, salesperson sitting at a large company, you’ve been thinking about starting something new, the pandemic hits. We’ve seen a lot of people who are working on really interesting technical areas at the large tech companies, and are now coming out of month three or month four of this pandemic thinking, ‘Hey, that project I’ve been working on internally that I think could be useful for the rest of the world,’ or, ‘That pain point that I’ve always wanted to start a company around – now is the time to go do it.’
RH: “It’s a great time to start a company.”