Georgian's Margo Wu on Fundraising During COVID

Hey everyone. My name is David pool and welcome to another episode of The Georgian growth show where we'll be doing another top-three this job on diligence during covid-19.

Sure. So when you look at the profiles on our team, you'll see that it really looks like one that would be at any of the software companies that we invest in life experience that spans sales and marketing to product development. I also fit into that X operator mold. I started my career in technology Consulting at Accenture played ahead of Ops role at 2 startups and was a product manager at Amazon before joining Jordan. As you said, I am currently a VP on the investment team and actively involved in diligence on new potential Investments as well as closely working with management teams at the board level.

Nice, so let's jump into the questions and think we'll start with one that's on every Founders mind which is how does fundraising compared to pre pandemic what makes a differences that you've been seeing. Well, it's just a fact that investment activity is down and we're seeing something like roughly 30% down year-over-year so far this quarter, but still there were eight billion dollars invested in April meaning these are active. So if you are a Founder know that Venture capitalists are still investing found every VC I've talked to has stated that they are open for business for sure though financing rounds are taking longer to clothes and there has been a Slowdown in New Deal activity kind of shift is really taking place for a few reasons first most investors are focused on existing portfolio companies and doing follow-on funding in the short-term. So they simply don't have the bandwidth.

For as many New Deals, although I'd say in the early weeks of covid-19 certainly true, but now investor bandwidth is really starting to open up and then second like anyone else investors are also adapting to a new normal which is the fact that we're all building relationships with prospective companies through virtual communication before that. I'd say most investors relied heavily on FaceTime to develop trust with entrepreneurs or in-person networking with other VCS for warm referrals and then lastly wage given the macroeconomic risks most museums have stated that their bar has risen. We're all looking at the same metrics and markers of success as we were before but only committing to page top of the highest-performing segment. So the big takeaway here from Founders is that it may take more time than before to develop trust and willingness to jump into a business wage.

With a v c so start early or if you are planning to raise soon try to delay for a few months or to prepare for a longer time to close if you're in the middle of a raise or have term check out try to close quickly. So a lot of activities still going on and really the same trends that Founders are seeing with their own pipeline long. It takes longer to build trust and establish relationships virtually than it does face-to-face apply to VC as well. Now you mentioned that a lot of activity has been around not following what new deals. Have you seen getting done?

Well, David good companies are still raising money some of our portfolio companies that have raised with competitive terms and we have been involved in some competitive processes ourselves. We're off the Georgian team has had to figure out how to pitch well over resume to several of our portfolio companies have jumped on Market opportunities through quick product Innovations and seen their revenues increased since the beginning of the crisis. It's a fact though that there have been a number of large growth financing is in the Press since March startups focused on The New Normal including remote work telephone or distance learning have all done. Well, for example notion a productivity start up in San Francisco raised of fifty million dollar round in late March that valued woke me at two billion and Mero a digital whiteboard and collaboration tool also raised a fifty million dollars here to be announced in April.

An overall point I'd like to make is that companies that are part of the new normal or have covid-19 wins may be in the minority, but actually in the long-term we are getting excited about the fact that Covetous really acting as the Catalyst for a whole new wave of digital transformation. Yeah one hundred percent agree with you. It's been interesting to see the wave of realization came across not just the kind of businesses but throughout personal life as well how much this will have an ongoing effect in just how we use digital tools and how we can expect more and more things to be digitized. Thanks to the pandemic. So let's kind of switch tracks a little bit here and talk about what we are doing differently internally at Georgia and what kind of new things that we looking for how has this changed diligence approach in diligence? There has definitely been a shift in expectations and preferences.

For all the usual metrics we are doubling down on indicators of predictable growth and we have become more focused on not necessarily Break Even profitability, but we want to see efficiency in the business and cash burn that is under control. There is also renewed focus on the mission criticality of products and their stickiness walk-in customers. We really want to understand the pre-and-post covid-19 tamam for the companies we need so new diligence questions have included. How did you handle covid-19? And what did you do? Do I just honestly, I think we may be asking this question for a long time because it tells us a lot about company of leadership. We want to know what headwinds cocktail wins has covid-19 for your business and how sustained do you think these Trends will be what has covid-19 din your product roadmap. How are you preserving and enhancing your company culture in this wage?

Not working environment in terms of company financials. We're looking for more on the before-and-after covid-19.

Good understanding of the levers that they can pull in various scenarios. And then last but not least. Our team has been even more focused on pieces fit around machine learning and AI for potential Investments. We're always looking for vision lock with management teams on how our impact team will be able to accelerate their business and now with limited bandwidth. We're really looking not even more for the best fit assume. It's a crucial point to kind of underline and goes back to building relationships and building trust is that alignment in terms of how we see the use of Technologies specifically around the ml being a driver of transformation. I guess. We we covered that what we look for in terms of sex, but how has covered changed the approach to diligence and and how we kind of go through the process.

Internally diligence feels less rushed because we're diving even deeper with companies though. We are still moving fairly fast and always look to match a perspective companies fundraising process in terms of interaction throughout the process. We're really working on innovating and creating a more fluid virtual diligence experience for companies. What do you mean by that? I mean, we are giving CEOs and management teams a digital channel for visually seeing and accessing our diligence workflow and providing access to relevant content and analyses that our team has completed internally using the data provided to us. So our goal is to continue increasing digital transparency into our process and decision-making while giving value back to companies to help them understand their metrics and business even more

This is definitely something we've had in the roadmap for a long time, but covid-19.

Valuations what advice do you have for founders?

Okay, so as I mentioned before investors have adjusted their bar. So founder should be realistic investor appetite for Outsiders rounds and valuations has decreased in the short-term. If you are overly ambitious in your funding size gold it can backfire. I have seen valuations in today's market really go down anywhere from twelve need to even 50% So we're multiples were say a 20x ARR before covid-19 are now closer to ten eggs. If you do have the opportunity to close a term sheet at a fair. This is likely not the best time to play hardball. I encourage Founders to get through the fundraising process as fast as possible. So they can navigate the company's operations and off obviously, I can't predict how long these Trends in valuation will last it could be another three months. It could be another year, but all of us will be paying close attention to this in them.

Nice, so just kind of to sum everything up if you were to take all of the above into consideration. What advice would you have for Founder's on creating a fundraising strategy? Okay at the highest level I would think about which of the following categories your business falls into because of covid-19.

Leave the right time to go out and get some Capital to scale in this situation the strength and the market opportunity should be enough to raise with good outcomes. And then if you are in a middle scenario where your Market is experiencing some headwinds for a quarter to and you are probably expecting your top-line Revenue to go down 10 to 25% compared to budge. You will need to do a bit of homework bring cost down focus on building your product and on improving unit economics and growth and sales engine efficiency. Ideally you took enough cash to make your company more efficient and show a couple of quarters of growth before you need to go out to fundraise again.

Excellent really like the three categories that I think that brings a great deal of clarity to the decision-making Margo. Thanks so much for joining us today. This is a lot of fun grown now. Thank you so much, David.