It’s one thing to raise money during a pandemic. But what about raising money during a pandemic while simultaneously battling a fever, aches and chills?
“It was horrible,” said Jarred Kessler, CEO of EasyKnock, who came down with Covid-19 while raising a $20 million Series B this spring. Summoning all of his strength and conviction, Kessler said he pressed on with negotiations and investors’ due diligence in late March without letting on that he was sick. The round closed in June. “Now I can look back and say, ‘From my bedroom, with Covid, I was able to raise $20 million,’” he said. “If I can do that, I feel like I can do most things.”
There’s no playbook for raising money during a pandemic, but dozens of startups and investors are drafting one, whether out of necessity or to accelerate growth. Swapping dinners for Zoom calls, many founders have been riding a rollercoaster of emotion amid massive global uncertainty.
“If we were personally wealthy people with deeper pockets, we would have hibernated. But we didn’t have that luxury,” said Nick Dazé, co-founder of Pocketlist, an L.A.-based rental marketplace that closed a $2.8 million seed round in July. “It was some of the most stressful shit I’ve lived through.”
John Berkowitz, CEO of Austin-based OJO Labs, said travel restrictions complicated his efforts to raise $62.5 million and simultaneously negotiate a deal to buy Movoto, a residential listings website. In the past, he said, investors didn’t hesitate to visit him in Texas. “That goes away when the planes stop working,” Berkowitz said.
John Fagan, CEO of Doorkee, said he had commitments from investors prior to Covid but he started “panicking” when due diligence and negotiations stretched into March. “A handshake deal is not money in the bank,” said Fagan, who finalized a $5.7 million seed round in July. “People can get spooked.”
Logistical gymnastics, not to mention stock market volatility, was undoubtedly a death knell for many deals. During the first half of the year, VCs invested $1.2 billion in 102 proptech deals, according to PitchBook. That compares to $5.6 billion in 269 deals for all of 2019.
“We wound up doing a lot of our defensive work pretty early,” said Zak Schwarzman, a general partner at venture capital fund MetaProp. Schwarzman told founders if they weren’t sure how Covid would impact their business, they should conserve cash. “Cash is king in a moment of uncertainty,” he said.
By May, Schwarzman said funding rounds generally fell into one of two categories: emergency infusions to get a company through the pandemic (think Airbnb’s $2 billion in debt and equity) or strategic investments to help startups seize a market opportunity.
But with most startups raising money in 12- and 18-month cycles, a third group of companies found themselves smack in the middle of fundraising just as Covid struck.
Mynd, a San Francisco-based property management startup, was one of them. The four-year-old company raised $20 million in May 2019 and began fundraising in early 2020. On March 11, co-founder and CTO Colin Wiel said he started to question whether it would be possible to raise the round, after President Trump canceled incoming flights from Europe, the NBA suspended the rest of its season and the Dow ended a 10-year bull run all in one day.
“We only had three months of capital runway left,” said Weil. “It was kind of do or die.” Investors led by Wells Fargo stuck around, and Mynd announced a $41.5 million round in June.
Pocketlist was in a similar situation, after kicking off fundraising on March 1, ten days before L.A. shut down. Dazé said it was either keep fundraising or lay off his eight-person team. He hunkered down and in July closed a seed round led by David Sacks’ Craft Ventures, with participation from Zillow co-founder Spencer Rascoff, whom he met only on Zoom.
Beyond logistics, raising money during a pandemic has raised a host of hairy questions, including how to value a company when large swaths of the economy are shut down.
Hospitality startup Sonder, for example, raised $170 million in June at a $1.3 billion valuation, a “modest increase” from its previous $1.1 billion valuation. “Had the pandemic not occurred, we were on the verge of an even better valuation,” said CFO Sanjay Banker. In the context of the pandemic, he said Sonder execs were “humbled” by the investor support.
Some companies that closed rounds in March and April waited months to share the news. MeetElise, a property management startup backed by AvalonBay and Equity Residential, closed a $6.4 million Series A in March but announced the news in July. Notarize, a digital notary startup out of Boston, followed a similar timeline when announcing a $35 million round. “Honestly, it didn’t feel appropriate with so many people and companies hurting,” said CEO Pat Kinsel.
Benjamin Krall, CEO of New York-based scaffolding startup Urban Umbrella, said it was awkward to ask new investors for money, especially without knowing if they were personally impacted by Covid. “I was reaching out to anyone and everyone but I had to be sensitive,” he said. In May, the company announced a $2.8 million Series B.
Christopher Yip, a managing director at RET Ventures, said it’s “hard to imagine” investing in a startup without meeting the team. “I would never say never,” he said. But, “for us, there’s no good replacement for a face-to-face.”
Yip said his first business trip post-quarantine was to Denver to meet the founder of a startup that RET may invest in. They met at an outdoor restaurant over fried chicken and cocktails. “We walked up to each other and gave each other this look like, ‘Are we going to shake hands?’” he said. “We did, then we took a big pump of hand sanitizer before we sat down.”
Over the past few months, other investors have written big checks without meeting the team in person. Hippo, a Silicon Valley insurance startup, announced a $150 million raise this week from investors Dragoneer, Ribbit Capital, Felicis Ventures and Iconiq Capital. CEO Assaf Wand told Bloomberg that fundraising was decidedly harder on video since he couldn’t “read the room.”
On the flip side, James Segil, president and co-founder of Openpath, a hands-free office security startup, shrugged off the remote due diligence and negotiations. “You know, people do online dating and fall in love online,” he said.
In July, L.A.-based Openpath announced a $36 million investment led by Greycroft, which made a pre-emptive offer to invest last year, setting in motion the company’s Series C. “They came at us with a really aggressive term sheet,” said Segil, who sold a previous company, Edgecast, to Verizon for $350 million. He added that in April, as employers and landlords started to think about what a post-Covid workplace would look like, other strategic investors saw the writing on the wall and finalized their bids. “Touchless access will thrive out of this,” he said.