Over Half of VCs Have Stopped or Cut Down Investments, Survey Finds

More than half of venture capital firms have halted or reduced their activity in light of the coronavirus (Covid-19) pandemic, new survey shows. Over the past week, Israeli customer research startup Wizer Feedback Ltd. surveyed 131 venture capital funds and corporate venture arms on how their activity will be impacted by the ongoing crisis.

The survey included venture funds with over $1 billion in assets under management, Idan Geva, co-founder and chief business officer at Wizer, told Calcalist.

A quarter of the participating VCs responded that they intend to completely stop investments in the near future. Another 32% said they will invest less. Only 5% of the funds said they intend to increase their investment activity, while 17% said they would continue to invest as usual. The remaining 21% said they did not know how their activity would be affected.

In a Wednesday call with Calcalist, Dov Yarkoni, CEO of early stage incubator and investment fund Nielsen Innovate, gave his insights on the current investment climate.

"Venture capital funds are stopping everything in order to better understand the situation," Yarkoni said. "We are experienced from past crises. I've been through the bursting of two bubbles as an entrepreneur and the first thing you do is try to understand the immediate effect. First, you focus on the companies you are already invested in, and most of them are very young companies and deserve full attention."

Yifat Oron, CEO of LeumiTech, the technology arm of Israel’s Bank Leumi, does not think VCs will be sitting on the sidelines for long. "We are seeing a temporary stop in investment by funds and that is to be expected,” Oron told Calcalist Wednesday. “Each fund is analyzing its portfolio and making sure that they are adjusting to the new situation and are preparing for a certain level of expense that will fit their income, which in most cases will be experiencing a drop. The VCs are also focusing on assessing their portfolio and the level of investment they will need to make in each company, which has likely increased. This analysis only started in the past week and a half, so the VCs will only return to activity when they are done with this."

The survey also found that 39% think the crisis will last at least six months and will extend into the fourth quarter of 2020. Some 27% of those who answered said they believe the crisis will last approximately a year while 20% said it will take more than a year to come out of the economic aftermath of the pandemic.

According to the survey, VCs believe that the health industry will be the biggest beneficiary from the crisis, with the gaming, analytics, and data sectors also mentioned as likely to emerge from the coronavirus crisis as winners.

"The survey showed a trend of increased interest in investing in fields that are searching for solutions for the problems we are dealing with in this crisis: investment in health-related technologies, and on the other hand investment in gaming," Oron said. "We can expect a moderation in this trend and that investors will very quickly return to be interested in companies that solve problems and improve processes in normal times and not just during crises."

According to the survey, 78% of those questioned would recommend startups to cut their expenses immediately, freeze recruitment and keep a close eye on cash flow.

Dov Yarkoni believes companies should put employees on leave without pay. "The next three months will be crucial," he noted. "Every company which has cash needs to assume that it won't be able to raise money over the next 12 months."