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Raising Venture Capital in the Time of Coronavirus (COVID-19)

Like the general population during a pandemic, startups fall into low-risk and high-risk groups.

Baron Rothschild famously said “buy when there’s blood in the streets,” but when the metaphor is playing out in real-time it’s hard for any investor to imagine backing a venture deal. Though venture capitalists know there are plenty of great opportunities when markets are distressed, everyone puts on their breaks following a 7-day run of public market trading sessions that alternated ±4%, travel from Europe is halted, and the president has declared the first public health national emergency in the United States since the H1N1 swine flu outbreak — a virus which infected 60 million Americans in 2009 with a death rate 100x lower. As with the general population during a pandemic, startups fall into low-risk and high-risk groups.

Startups at Low Risk

For now, I’ve seen venture deals already in motion still moving across the finish line. Startups that close will likely have the runway they need to weather this storm. Similarly, companies seeking an acquisition more than a year from now shouldn’t panic. For reference, the Swine Flu pandemic was under control and a vaccine had been developed within a year of the initial outbreak.

Startups at High Risk

For startups planning to raise in the near future, it’s time to think strategically and get to work on what will likely be a more complex fundraising process.

Circle the Wagons

Use March and April as a time to seek guidance from existing investors and confirm their likely level of participation in the next round. 

Align With a Tailwind

Market conditions always prevail, so those pitching venture capitalists soon must identify a macroeconomic tailwind this black swan event presents and latch on! This might mean rapidly tweaking a business model or positioning the same product around a different market segment to back-up the new narrative.

Prepare for a Prolonged Fundraising Cycle

As Sequoia recently wrote, startups should question assumptions about their models in an environment where the status quo has changed and cash runways will likely be shortened. Also, in a time of heightened uncertainty, VCs will have a preference to nurture their most promising portfolio companies than to write first-checks. With fewer buyers in the market, finding a new lead investor to set terms, a grueling process even under normal conditions, will take more time.

As a means to adapt to unfavorable market conditions, consider raising equity rounds in two acts: the first half on a convertible note anchored by existing investors, and then the second half from a lead investor who will write a larger check, set terms for the round, and convert that note into equity in a few months. For example, if the next financing would have covered 18 months of operations, negotiate a 9-month bridge/extension on a convertible note with existing investors using the narrative that the company needs some time to recover from the temporary market instability, and will seek a lead investor to price and close the round later in the year.

When speaking with new prospective investors, ask head-on how they’re conducting business while the outbreak is still peaking. Assuming they are putting deals on a brief pause, be direct about asking for a soft commitment contingent on how the next couple of weeks pan out.


Harlan Milkove is a repeat VC-backed startup founder, and Managing Partner at Foundational where he works with early-stage startups to expedite their pursuit of venture capital. His prior venture Reonomy, a commercial real estate data analytics platform, has gone on to raise $125M+.


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