This long Covid pandemic not only reshuffled the deck for many of us, it flung the deck up into the air and torched it like one of those fire breathers at the circus. But it's long been known that game changing societal events bring game changing opportunity. Accordingly the last year saw startups thrive, hibernate and throw in the towel. In this episode Dave runs us through the Seedfunders portfolio, and startup investments in general, to see who has built up an immunity and who had to get a note from their doctor.
I haven’t seen you in forever. I miss you, everything okay?
Yup, all is good.
All is good. No, COVID?
No, no, I just decided to take some R&R.
Okay, well, what are we going to talk about today?
Well, you mentioned COVID. Why don’t we talk about that?
All right, let’s do it. Where do we start?
Well, it’s obvious that COVID had significant impact on investment in tech startups. And they’re both good and bad. Shutdown started in March of 2020. And continued to this day, 21 months later. So maybe we could just recap some of the impacts and discuss them.
Okay. Well, you know, SeedFunders is all about deals. So let’s start off with deal flow, how has deal flow been affected by COVID?
Well, since the start of the shutdown, we’ve actually seen a significant increase in deal flow. And the biggest reason for this, as I’ve said before, is the almost universal use of Zoom or some other remote conference system to hear pitch presentations. We no longer have to arrange a conference room, travel for the presenters, even getting our partners physically together at the same time. Thus, it makes it much easier to schedule pitches. Even though we only invest in Florida, we’ll listen to pitches for companies out of state, as long as they’re willing to open an office in Florida or have some significant presence in Florida. So, this opens the door to hear a lot more pitches. In fact, two of the most recent companies that we invested in, one was headquartered in Boston, is headquartered in Boston, but they have a major Florida presence, and another one from Canada decided to relocate to St. Petersburg.
That’s great. And the world is open. And we do see a lot of pitches.
Yeah, we do. As you know, we meet via Zoom every week, since COVID. SeedFunders, Orlando and SeedFunders, Miami meet every two weeks. So if you look at the numbers there, it’s almost every minute has a pitch scheduled. That’s almost 100 in one year. And that doesn’t include all the other submittals and inquiries we receive. So yes, deal flow is strong and has only accelerated during COVID. One other advantage by the way of the remote pitches is recording, we record every pitch. So we can send the link to partners who weren’t able to attend the meeting, or attend the Zoom meeting. And they could listen to it at some other time. So I just don’t see us ever going back to fully live presentations. So I think that has been a positive impact of COVID.
So obviously, with Zoom and all that, that really keeps the pitches flowing, what about the actual investing?
As you know, that when shutdown started, as I said, in March 2020, that’s 22 months ago. In that time period, we’ve made 21 investments in those 22 months, 12 of those are new portfolio companies. And nine, are follow on investments in existing portfolio companies. We’ve invested in some companies that I’ve never actually met the founders. Our average investment continues to hover around $150,000. So that’s over $3 million invested in this period. Now I know, some people are going to say, “Well, it doesn’t sound like a big number,” but we invest in pre-revenue technology startups. So, getting these companies their first $150,000 from a professional investment firm is often the difference between them being able to launch or folding, before they really get a chance to prove their concept. So, I’m really happy with how we’ve done during COVID with investing.
That’s great, and how have some of our portfolio companies done since COVID started?
Well it’s actually a mixed bag, but probably not too far off from how tech companies did before COVID. We had two portfolio companies delay their full launch. One is in the travel industry, and the other is in in-person education. So these decisions made sense to delay launch during COVID. Four of our portfolio companies however, tried to pivot because of COVID. Now, that was not a good idea for two of them. And they should really just shut down and preserve their cash and waited it out. I talked previously about the importance of timing. And most often you can’t control the outside impacts when it comes to timing. If however, you recognize the potential extent of an outside event you can react. So trying to pivot instead of conserving cash was not the right move for these two, they weren’t able to really predict the future or react to the future. A third company, however, pivoted right into COVID and has been very, very successful.
So we have had companies that have thrived and done well during COVID.
Yes, we do. We have five portfolio companies actually that are doing quite well. One, which we invested in, believe it or not pre-COVID is an automated hand washing monitoring system for hospitals and medical facilities. As you can imagine, after COVID came out, the demand spiked. And we actually made a follow-on investment which was almost twice the amount of our original investment. Another is one that pivoted due to COVID is really nailing it right now. It was a broadcasting platform for live events. And they pivoted into virtual events. So again, as you can imagine, they are really taking off, and they’re getting a huge interest from follow-on investors now. So I don’t necessarily see a connection between the other three that are doing well, one way or the other. But I think that is just great execution, despite COVID. So that’s the reason they are so successful. So, we have had some very, very successful companies coming out of the post COVID.
And what about the rest of the portfolio?
Well, a few of them about three or four are too new to tell if they have been impacted or not. They’re relatively new investments. And the rest of them maybe three or four more, are kind of moving along without much impact one way or another that I can see.
Got it. So it’s a good summary of SeedFunders companies, what about do you have any insights into other entities in Florida and how they’ve fared?
Yeah, there aren’t any real studies or analytical reports on the effect of COVID on startups on its startup funding. But I know from talking to other investment entities in Florida, they’ve all had similar experiences in the past 22 months. But again, these are anecdotal reports, since I said they haven’t seen any real analysis or quantitative reports, because obviously, COVID is still going on. So I did find some qualitative reports however, that seems to be relevant to our topic.
I feel like we’re at the precipice of a rabbit hole. Reports, let’s jump in. What do you got?
Well, I’ve got quite a few. But maybe we’ll just concentrate on the first one here, that basically there’s a group called App Symbol, they issued a report titled COVID-19 impact on tech startups in 2021, exactly right up our topic today. They basically say that the stay at home restrictions and company closures had a huge impact on physical services and in person consumer products like hospitality and things like that. But the tech businesses did actually relatively well. They cite five things they call the new normal, which is what benefit tech companies had in particular. First of all, increased productivity, then increased requests for services. They cite increased digital expenditures, increasing customer preferences, and the tech lead healthcare solutions.
Alright, that’s interesting. Let’s dig into a couple of those. Let’s start with maybe increase productivity.
Well, first, they say that remote working has actually caused an increase in productivity for tech companies. And this is due to the fact that software development is generally a solitary activity. With tools now, such as Slack, Skype Telegram, these developers now can adapt their schedule, allow them to produce more in an eight-hour day than they typically could in an office. They do say however; some people may struggle with remote working. And they suggest the future is going to be a hybrid working style that may be part of this new normal.
That makes a lot of sense. When I last ran a tech team we had, you know, we saw that just a tap on the shoulder to when the developers would knock them out of their deep thinking and deep coding cycles for probably a half hour. And we actually had to engineer in that private time, which now seems like Zoom has done for us. You also mentioned request for services. What’s that mean?
Here are they cite a growth in the digital products and services going from, like 33% 34%. These are new digital products and services, 33 34% 2017 and 18 to 60% by July 2020, at the start of the pandemic. So once the pandemic started, this request. This need for digital products and services doubled. They also state that 70% of startups decided to increase or maintain expenditures in the digital technology. So now, you also have a new need, and you have more expenditures going into digital technology. And this was due to startups leveraging that digital technology to automate processes and help customers remotely.
And it makes sense then that this would all affect customer preferences as well.
That’s exactly right. They say COVID shook up customer behavior. And that’s again, part of this new normal. Things like purchasing groceries online, online e commerce, they’ve become commonplace. And startups are now expected to create attractive websites or apps that both market their product and allow for remote buying by the consumers. So, it’s another huge change.
And you said healthcare solutions are a big factor. Is this the new normal?
Yes, I talked a few podcasts ago. Actually, we did a whole podcast about my personal experience with recent developments in healthcare technologies. And this report says that digital solutions have aided healthcare systems in quantifiable ways like contact free healthcare services, AI apps and things like that. All of this is part of this new normal that was basically ushered in by COVID.
So, with great disruption comes great innovation. Any final thoughts?
Well, you know, there are a lot of things out there. There’s no quantifiable reports on the effect of COVID, but there are a lot of qualitative reports. And so, if anyone is interested in following up more the qualitative analysis, there are a number of reports and I could cite those for future reference, if anyone wants to look at those. There’s one called, How COVID pushed companies over the technological tipping point and transferred businesses forever by McKinsey. There’s one by PwC called, COVID-19 and the technology industry and one by Deloitte of course, titled, Maximizing the impact of technology investments in the new normal. As I said, there’s all qualitative reports. And maybe after new normal, that might be some quantitative but so far, things have looked pretty good for the tech industry.
That’s awesome. Dave, don’t be a stranger.
Okay, thanks, Joe