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The elimination of face-to-face meetings could have an unexpected benefit: expanded access to capital.
In brief
- Video conferencing has ushered in new practices that, if continued, will benefit both VCs and the private companies seeking investment capital.
- Virtual networking has enabled VCs to expand their outreach to underrepresented entrepreneurs.
- As pandemic threats dissipate, we’ll likely see VC firms take a hybrid approach, utilizing both virtual and face-to-face meetings.
At the recent EY Strategic Growth Forum® (SGF) the participants’ sense of optimism was real. The consensus among investors: this is a fantastic time to raise capital. Venture capital (VC) deals are booming and IPOs have been surprisingly resilient, with record-breaking numbers.
The VC community’s ability to overcome pandemic-related limitations has been remarkable. The shift to remote working and virtual communications has allowed deals to advance. Though not “business as usual,” the industry appears to have adapted well.
Presenters at one session, “Financial growth: capital-raising trends and strategies in a tumultuous economic environment,” even shared an interesting observation. The current virtual working environment may be flattening the VC landscape, which over time could level the playing field for some private companies that in the past would have been at a disadvantage due to limited access. The panelists were Andy Cantwell, managing partner at Carlson Private Capital Partners; Ann Chung, managing director of Blackstone; Scott Kupor, managing director at Andreessen Horowitz; and moderator Phillip Mazzie, managing partner of the San Francisco office of Ernst & Young LLP.
Expanding the venture capital deal universe
The switch from in-person meetings to video conferencing has ushered in new practices that, if continued, will benefit both VCs and the private companies seeking investment capital.
VCs are learning to work within a video conferencing environment to dig deeper for diamonds in the rough. They can meet and screen more companies quickly and conveniently than possible before, enabling them to look at companies outside the industries that typically attract investment. Follow-up sessions are handled virtually until the VC firm is ready for a socially distanced in-person meeting.
This approach also helps entrepreneurs. Traveling to introductory in-person meetings can be expensive, time-consuming and unproductive. Extensive roadshows take focus away from the day-to-day running of the business. The ability to meet virtually creates a significant benefit for small companies, especially those not located near VC strongholds.
Here’s another example: Rather than only a small group of company leaders attending in-person meetings with VC firms, companies via virtual calls can showcase more of their management teams. Potential investors get a better idea of the depth of leadership and founders can demonstrate the varied skill sets of more of their people.
The new environment also is enabling VC professionals to maximize their “return on time” by expanding their ability to evaluate more companies to find the right deals. Although significant dollars still go to established later-stage companies, there is still considerable opportunity for smaller companies to benefit. There is plenty of money on the sidelines looking for opportunities.
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Capital markets access for underrepresented entrepreneurs
Another theme that emerged from discussions at SGF was how virtual networking has enabled VCs to expand their outreach to women and minority-owned firms that historically have lacked access to capital markets. In the session, “Impact investing: generating measurable positive social or environmental impact alongside financial return,” panelist Edward Dugger III, president of Reinventure Capital, shared his view on access to capital. “We cannot afford to fail. We must show the way here for this to be a viable investment approach,” he said. “So much is riding on this in terms of correcting the inequities that currently exist.”
In recent months, many VC firms have made significant commitments to increase the funds invested with founders from underrepresented communities. Virtual meetings are ideal for expanding the pool of potential targets to include companies that previously may have been overlooked.
This is a significant development because the old way of identifying possible investments has always hindered entrepreneurs lacking strong personal networks or private companies without ready-made networks and extensive travel resources.
VC firms that are serious about their commitments to underrepresented communities can use virtual screenings to discover entrepreneurs who otherwise would struggle to be noticed. Greater use of this technology can represent a huge step forward for the industry and the many women and minority founders — and their leadership teams — who deserve funding for future growth.
There should be an additional benefit once face-to-face meetings resume: many entrepreneurs have been relocating to places like Denver, Miami, Austin, and other cities with nascent but still developing tech scenes. In some instances, cities are offering strong incentives for pandemic relocation. The movement of startup culture may energize and inspire entrepreneurs in previously overlooked areas, sowing the seeds of opportunity with expanded access.
A hybrid approach to networking
Of course, in the future, in-person meetings will be permissible once again. But the sense among participants at SGF is that virtual communication offers too many benefits to discard entirely. As pandemic threats dissipate, we’ll likely see VC firms take a hybrid approach, relying on virtual meetings whenever possible and using face-to-face as needed.
Finally, while it’s true that technology is enabling VCs to expand their universe of potential investment targets, they will always value introductions from people they know and trust, particularly in an environment that limits conference attendance and face to face meetings. Founders need to continue to develop relationships with law firms, banks and even advisory firms such as Ernst & Young LLP that can connect them with potential investors. They also should tap their network of fellow entrepreneurs who have raised capital to see if those investors may be interested.
One approach to opening the doors is participation in the EY Entrepreneurial Winning Women program or the EY Entrepreneurs Access Network for minority-owned businesses. These proven business accelerators support underrepresented entrepreneurs through education, networking and introductions to investors. They can help founders find and access the tools and relationships necessary to take the next step.
Every entrepreneur with a scalable idea should be able to realize its potential — and the nation will surely need the jobs created by more equitable access to capital and opportunity. As the economy begins to heal, more entrepreneurs will need access to start-up and growth capital. It’s clear the adaptations embraced in 2020 could go a long way toward expanding capital availability for previously underserved industries and communities. The investment community should work to preserve the broader access it experienced in 2020 to fuel the economic renaissance we need now.
The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.
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Summary
Every entrepreneur with a scalable idea should be able to realize its potential. It’s clear the adaptations embraced in 2020 could go a long way toward expanding capital availability for previously underserved industries and communities. The investment community should work to preserve the broader access it experienced in 2020 to fuel the economic renaissance we need now.
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