Through the start of 2020, entrepreneurs were guzzling the Kool-Aid of rapid growth, fueled by a mind-boggling flow of VC dollars into startup war chests. Then coronavirus hit.

As the year opened, the Santa Cruz tech sphere found itself front and center on the venture capital stage. Local companies Joby Aviation and Paystand hit historic investment milestones: a world-leading $590M and a whopping $20M, respectively.

Just as these storied successes boldly hit headlines near and far, coronavirus rocked the economy and crimped the swagger of startups. Founders buoyed by record funding had to adapt overnight, switching gears from a focus on scaling to the heavens, to basic, balance sheet survival. With business at a near standstill, compressed valuations, and bearish investors, many young companies are finding themselves in rather darwinian predicaments.

Now, with Crunchbase reporting Q1 2020 numbers on the state of global venture capital, key data lends a new layer to the “startups vs. coronavirus” showdown.

• Number of venture rounds are down by 5% from last quarter, 4% year over year. 

• $63.8 billion was invested worldwide in Q1 2020, down by 17% last quarter, 8% YOY.

• North America now commands a larger share of VC dollar volume versus the rest of the world, up 13% from last quarter, and 4% YOY.

While many entrepreneurs are struggling to weather an unprecedented socio-economic maelstrom, venture capitalists are still looking for attractive deals and forward-thinking founders. We turn to the wise words of our local angels for their stories, insights, and advice, offering an investment community perspective to the founders in the heat of it all.

G. Craig Vachon: Founder and Managing Partner of Chowdahead Growth Fund 

Vachon is chief of Chowdahead Growth Fund, a Senior Partner at NextStage, and sits atop multiple boards. This fall he released his comedic spy thriller, The Knucklehead of Silicon Valley.

“I’m gonna argue that venture capital is still pretty solid. If you look at the actual dollar amounts those are down 8% year over year, arguably that’s not a lot, and if there’s still north of 5500 investments this quarter, for as much of noise and chatter there is from the market, I’m going to say this is a huge win for startups” he says. “We have three portfolio companies that have all gotten funding over the past 90 days, one of which is based here in Santa Cruz.” 

The world now works behind webcams, and Vachon emphasizes that it’s important for founders to reevaluate their pitches in light of the virtual meeting environment. 

“How do you create great persuasion when you are not sitting face to face?” He asked. “When you can see feedback and you can hear if people have questions–these are all things good speakers can cue off of–but now in a presentation from a startup CEO or team, they are unable to read my facial expressions”. 

So, has Vachon’s approach to investing changed since the onset of COVID-19?

“I don’t think it’s any different, the criteria doesn’t change. I still look at the same five key areas. I am still looking at those areas whether its January or its April. I am looking through the lens of how society changes, and will this business model be able to change with society’s changes?” 

Toby Corey: Angel Investor and Stanford Lecturer

In addition to teaching entrepreneurship classes at Stanford’s engineering school, Toby Corey has a board seat at various organizations, including CruzFoam and Santa Cruz Works, and is an active angel investor in the community. 

“Given the uncertainties in the marketplace, startups are challenging and high-risk anyway, then you layer on a massive macroeconomic layer of pandemic uncertainty, so investors are going to be very cautious,” Corey says. “New opportunities will emerge, and some existing investment theses that used to look promising are going to be toast”. 

His advice to founders right now: introspection. (After all, he is a “Zentrepreneur.”)

“Look internally, what’s the most important element to your business, how does this pandemic look to your business? The most important part is runway, preserving your cash, being realistic about your revenue projections. It is preferable to have two years of runway if at all possible”.  

Corey also learned a motto while teaching at Stanford (other than “Go Trees!” or whatever they call their mascot, other than pure genius):

“Don’t let a good crisis go to waste,” he says. “That’s what entrepreneurship is all about, you have a seismic shift that’s occurring, on one hand it's scary, but the cards are getting reshuffled and that presents an opportunity to look forward and figure out what the future looks like.” 

Lou Pambianco, Chairman and CEO of Startup Sandbox

Lou Pambianco is as busy as ever steering the ship at Startup Sandbox, a biotech incubator that works with member companies to convert cutting-edge research into commercial applications. It is no surprise that some of these companies are pioneering technologies to fight COVID-19.

“At Startup Sandbox, our member companies are full speed ahead…we have three companies that are actively pursuing coronavirus identification and testing,” Pambianco says. “We have a company that is doing a prototyping, pre-production line to be able to do batch, individual identification of whether an individual is carrying the coronavirus. When I say batch, they can process up to 10,000 individuals at a time.”

Pambianco’s world of biotech is unique amid the chaos unfolding in other industries. The field has surged in response to the pandemic, particularly for companies marching towards a vaccine, and continues to be a hot investment sector.

 “In terms of appetite for investment, I would point to the highest performing stocks and ETFS, which focus on the delivery of bioscience solutions for the diseases and problems that people face,” Pambianco says. “Whereas technology drove investments and profitability in the last decade, biotechnology-based on the platform of digital technology is driving the market at the beginning of this decade. I think we are going to see a lot of growth and that bodes well for companies who come to the Sandbox”. 

He has advice for founders in need of support right now.

“Send me an email.”

P.S.: He answers them all personally.

Looking Forward

The pandemic at hand is triggering a seismic paradigm shift, and the world it leaves behind is anyone’s guess. Startups that will define a new future are being ideated and executed upon right now, and even the unicorns who sprouted their rainbow horns just a few years ago will look completely different on the other side of this.

Even if propped up by VC activity in January and February, the Q1 data Crunchbase reports is far from terrifying, as year-over-year, the investment level is down only in the single-digits. Yes, startup valuations will be compressed. Yes, funding will be harder to secure. But as our angel investors point out, they are still investing, advising, and hunting for their next deals. This could be a great time for founders to really focus on the financials, learn from their mistakes, and start contemplating new ways to solve new problems.

While I think I would have to ditch my business major in favor of one in biochemical engineering to pique the interest of Lou Pambianco and his Sandbox, it sounds like Corey and Vachon are just as open for business right now.

On that note, let’s not let a good crisis go to waste.