1. Funding in the time of
Coronavirus
Mark Suster
Managing Partner
Upfront Ventures
@msuster

2. We all woke up in February 2020 with a shock to the system
and with no idea what it means for our business or funding.
MarketWatch, CNN
Jan 13: First case of
COVID-19 detected
outside ChinaDec 12: Initial
cases occur in
Wuhan, China
Feb 22: Dow
Jones plummetsDow Jones US Total Stock Market Index

3. The market hates uncertainty and the market hates deflation
(why buy today what will be cheaper to buy tomorrow?).
Deflation
?
Today
Uncertainty1
2
OR
Time
Valuation

4. A $40M pre-money deal today may fund at $20M pre-money
in 6 months even if financial performance hasn’t changed.
(not saying it will, but it’s possible)
Time
Pre-$
$40M
$20M
10x Multiple
5x Multiple
(Valuation of $4M trailing twelve-month revenue)
“Valuation Compression” or
“Reversion to the Mean”

5. If markets stabilize relatively quickly, capital markets tend to
move past an initial sell-off (but this event feels different)
MarketWatch
Summer 2015
“Correction”
Dow Jones US Total Stock Market Index
20202013 2015 2017 2019
Covid 19
Initial Sell Off
Dec 2018
“Correction”

6. While nobody knows for sure what will happen, I think
coronavirus is more likely to be seen as a “Black Swan” event
(like 9/11) where the world will be very different as a result.
Spanish Flu, Mortality Rates (UK)
First Wave
Second Wave
Third Wave
1919

7. “Social distancing” widely accepted mitigation technique
which will dramatically hit certain sectors and impact the
most vulnerable people in our society.
Chain Restaurants:
$151B
Domestic Air Travel:
$145B
Hotels:
$205B
IBISWorld
Example Impacted Markets

8. But there are other factors at work that add to uncertainty
that should continue through 2020 and beyond. These are
just a few of them.
November 2020
Elections
BREXIT De-Globalization
Worldwide
Populism from
the Right & Left
1 2 3 4

9. Great business are built in good markets and bad markets.
Running out of cash is still the #1 reason companies go
bankrupt – so plan accordingly!
1999 - 2002 2007 - 2010
MarketWatch
Dow Jones US Total Stock Market Index

10. A look back at the last
decade and some thoughts
on the next 2 years.

11. After an 11 year bull run it has to be acknowledged that so
far this is just a blip. On the other hand, there is a lot further
it could fall …
Coronavirus
stock sell offDow Jones US Total Stock Market Index
MarketWatch
20202009 2012 2015 2018

12. Startup funding is up massively in the
past 15 years and this innovation will
persist …
VC funds have raised a lot of capital as
value has shifted from publics to
privates. They will still need to put $$
to work
2006 2008 2010 2012 2014 2016 2018
$137B
$29B
2006 2008 2010 2012 2014 2016 2018
$46B
$31B
$140B
$58B
Pitchbook

13. Seed valuations have doubled in this
period.
2006 2008 2010 2012 2014 2016 2018
$7M
$4.2M
2006 2008 2010 2012 2014 2016 2018
$29M
$10M
$8M
$25M
Early stage venture rounds valuations
have also gone up considerably.
Pitchbook
If public market valuations continue to decline it will undoubtedly come to private
markets. It takes longer to reset private valuations and those who don’t realize the
change may struggle to get funded.

14. There are more billion dollar-valued private companies now
than ever, which is a sign of how pervasive the tech sector
has become and the value of “privates.”
3 4 4
9
11 12
42 43
22
34
54
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Pitchbook
Number of 1B+ Companies Created

15. The public markets FAANG company stock has become a
major driver of our overall public returns in the past decade.
MarketWatch, pulled March 3, 2020

16. It’s fair to say that the past
decade has been amazing
for startups and VCs.
But …

17. If public markets continue to decline and VC funding is
affected, you can expect VCs to first focus on their existing
portfolio companies first - “Triage.”
Photo credit: Thomas Hawk on VisualHunt / CC BY-NC

18. In a tough
environment
funding is like
constipation,
nothing gets
through.
Pixabay

19. When uncertainty passes VC funds have plenty of dry capital
to put to work. In a zero interest rate environments LPs will
continue to seek yield.
$0
$10
$20
$30
$40
$50
$60
$70
2009 2010 2011 2012 2013 2014 2016 2017 2018 2019
Pitchbook
US VC, Total Capital Raised ($B)

20. So your job is to stay funded past this initial phase of
portfolio triage and uncertainty.
t = ?
3 - 18 months
Funding markets
Revenue /
Cash Balance

21. In a war of attrition, history rewards the early and decisive
actions. It sounds easy, of course it isn’t. But everybody says
“we’re cutting into muscle” – you seldom are.
CASH BURN
+

22. There are some reasons the tech industry should maintain
its optimism.
100
230
293
1999 2013 2019
250
2800
4574
1999 2013 2019
World Bank, Internet World Stats, Pitchbook, Industry Ventures
US Internet Users
(Millions)
Global Internet Users
(Millions)

23. Connection speed in 2019 is a whopping 2000 times faster
than that in 1999.
1999 2014 2019
United States
(Avg. Speed, Mbps)
50
Kbps
11.1
96.3
Akamai’s State of the Internet, Statista, Ookla

24. Nearly everybody now has a computer in their pocket.
1999 2013 2019
United States
Smartphone penetration
N/A
Global N/A
56% 79%
22% 42%
Newzoo, GSMA, Statista, Business Insider

25. We’re all connected – when concepts work, they scale much
faster and become much more dominant than at any point in
human history.
0
500
1000
1500
2000
2500
1999 2013 2018
Monthly Active Users (Millions)
33 130 218 236
1,189
186
1,000
326
1,057
2,271
Upfront Analysis

26. With everybody’s credit cards or banks now connected to
tech platforms, we’ve eliminated most purchase friction.
We’re one tap away from buying online.
0
100
200
300
400
500
600
700
800
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total Active Users (Millions)
*
*Amazon user data is estimated as straight line from IPO (1997) to 2018 reported values
Source: Upfront Analysis, PayPay, Loup Ventures, BigCommerce

27. Most industry analysts haven’t even begun to comprehend
what an enormous shift 5G speeds will bring. We anticipate
enormous creative destruction and company creation.
< 1
Mbps
4
Mbps
25
Mbps
3G
2G
4G
5G
?
Note: Represented AT&T’s average 3G an 4G download speed. 5G networks have the potential to be significantly faster but data is only
available from simulated environments. RootMetrics, Wikipedia, Upfront analysis

28. The world is aging rapidly as birth rates decline. We will
become more reliant on technology to drive productivity, not
less.

29. What we fear – drones,
robots, automation, AI: will
be strategic imperatives to
feed the world.

30. If this is a Black Swan, you
must shore up cash now.
When chaos is obvious
everybody hits the market at
the same time.
Business Insider / Reuters / Duane Tanouye

31. If it’s not a Black Swan
event the worst case
scenario is you were overly
conservative.

32. THANK YOU