In the midst of the COVID-19 pandemic, it’s not only a tough time to do business, but it’s a tough time to invest in businesses.
Omar Sultan, partner at Sultan Ventures, spoke with Pacific Business News about how the venture capital industry is adjusting to the situation, with limited resources available to fund new startups.
“At Sultan Ventures, we’re working hard with many of Hawaii’s startup ecosystem stakeholders — from entrepreneurs and regional accelerators, to corporate executives and the public sector — toward creating solutions to weather this current crisis and come out thriving,” Sultan said.
What does the current state of venture capital look like for startups right now?
The state of VC is, to be blunt, very bleak right now, and will likely remain that way for the next 12-24 months as the world waits to see the full impact of the COVID-19 pandemic.
Many startups will see a significant shift in what’s fundable, their valuation levels, and which key metrics to focus on. Many of the key aspects of the economic stimulus relief packages passed exclude venture backed startups due to the SBA’s affiliation rule tests. Some companies that had focused on customer acquisition at all costs over growing profit margins are having to lay off hundreds of employees via video conferencing calls.
As travel for the foreseeable future will likely remain very low, most funds will likely become even more geographically-centric than ever before and will invest only in their home region. For a state like Hawaii, where few venture funds exist and there is a heavy focus on tourism, our local startups will feel this even more than our continental counterparts.
Although not a traditional venture capital focus, small businesses at all stages of their company life cycle, from startup to fully operational, are struggling right now. Nowhere is this more obvious than in tourism focused states like Hawaii which, based on recent numbers, is leading the nation in unemployment benefit claims at 73 per 1,000 workers in our state’s labor force.
Is it difficult to get funding?
Yes, and this is especially more likely the later the startup is in its company life cycle — think those that are trying to scale and acquire customers (minimal consumer/business spending occurring) or approaching exit stages (as investor wallets tighten and the appetite for IPOs and acquisitions dry up temporarily). Early-stage startups that recently received funding are probably the best positioned comparatively speaking, as they’ve got fresh cash on hand and the opportunity to pivot operations now.
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