Naima Camara (Senior Research Analyst, European SMB and Start-up Program)

A few weeks ago, I sat down (virtually of course) with Josh Seerattan, international business development analyst at Wesley Clover, a private global investment management firm, to find out more about the impact of COVID-19 on the start-up and venture capital (VC) landscape.

Camara: Tell me a bit about Wesley Clover and your role there.

Seerattan: Wesley Clover is a large organisation that has been around since 1972. We’re a private global investment company. The Founder of the company is an entrepreneur and a serial angel investor. We have active interest in cloud, SaaS and UC. We have a portfolio of 40 companies. We do direct investments across Canada, the US, and the rest is through the Alacrity global program.

To invest internationally, we find partners in government, angel, academic institutions, and corporates. Companies don’t become part of Wesley Clover until we decide to invest. We invest through a combination of venture building (building companies up from scratch) and initiated start-ups already in existence.

Camara: Outside of the venture builder side, at what stage do you invest?

Seerattan: Early stage. We focus on seed to pre-Series A. Any later than that would be rare and would be determined by the Wesley Clover Executive Team. We like to get in early, with companies that are coachable and can be mentored.

Camara: Do you always lead the investment?

Seerattan: We do direct investing and indirect investments as partners in the Alacrity Funds. The funds ultimately make the investment decision as they operate independently, however after the investment goes through the Alacrity Program we might choose to invest directly in the company later on.

Camara: Let’s move now to COVID-19. What has been the impact on the VC landscape?

Seerattan: It’s a mix. Lots of different investment strategies. Weak companies are being weeded out. If companies didn’t have something that added value, but was interesting, then they’re struggling now. These are also opportunistic times, with companies that are stronger and able to weather the storm, operationally, strategically. Investment funds still have money out there.

The terms of acceptable risk tolerance have changed and there are expectations of an exit strategy. Instead of a 10x IPO, investors are looking at a 3x or 4x M&A. Some companies are excelling in the pandemic and anticipating continued growth, and if you’re one of those and are accelerating, make sure that investment stakeholders know this. It should be in whatever newsletter that you’re sharing.

For those who have lost funding or are liaising with hesitant investors, you probably need to look at what the situation is, potentially if they have non-tech companies in their portfolios not doing well, then try not to worry. Wait it out or find a different investor. Wouldn’t be surprised if we saw more private equity soon.

Camara: What do you think the impact has been on the start-up and scale-up landscape?

Seerattan: It’s been the hardest on seed and early-stage companies that are still finding their product market fit. Those that were coming up with an MVP pre-COVID, it’s going to be much more difficult in this climate.

Later-stage companies tend to have more cash. Later-stage companies that don’t truly have a product market fit could be in trouble. Some companies have a company market fit, but the overall market hasn’t adopted them. In that case, there could some internal changes that could justify cutting. They could be keeping clients on as a legacy reason.

At Wesley Clover, we work with a lot of the early-stage start-ups and nothing’s really changed for them, as they were not at a point where they are going to raise. By comparison, later-stage companies have the bandwidth to shift business activities internally and undergo non-technical pivots.

Camara: What are some good ways to get noticed during a crisis?

Seerattan: Don’t oversell the future in pitches. Everything is so uncertain right now. There’s much more scepticism. Even if your business is tied to something that’s a mass market post-pandemic, there’s still a lot of pessimism out there, so selling a big grandiose future is not the way to go. One company had raised a lot of money but didn’t use a mass market approach. Instead it doubled down on one-to-one efforts. This is smart, particularly if you’re early stage, it’s crucial to establish strong relationships.

Make sure you’re giving stakeholders periodic updates. Newsletters are important and companies need to reorient their VP to what it looks like today.

What’s coming next for both investors and start-ups?

As we found out from Josh, it’s been a very turbulent time for venture capital investment globally, to say the least. On March 5, venture firm Sequoia Capital referred to COVID-19 as the “black swan” of 2020. With a drop in business activity, supply chain disruptions, curtailment of travel, and canceled meetings, the firm painted a very bleak picture of the road ahead for both investors and start-ups.

What has followed is a much more complicated story. On one side, we have had a surge in demand for many start-ups with highly specific use cases that have risen in importance due to the pandemic. On the other side, we have had investment deals pulled at the last minute and much more trepidation on the part of investors. Product market fit, customer churn, and investor trepidation seem to be top of mind for many start-ups and scale-ups in this new climate.

Keep an eye out next week for the rest of my conversation with Josh, where we discuss how start-ups are working with analysts. To learn more, please contact me or drop your details in the form on the top right.