Claire Harnett '19
Mark Bernfeld '78
Jeff Crowe '78
Peter Kidder '83
Now is not the time for entrepreneurs to be chasing the best possible valuation, but rather a time to make connections with capital partners who truly understand your business and will work with you to weather the lasting effects of the pandemic.
That was the message that Dartmouth Angels shared during a panel on debt and equity during the COVID-19 pandemic. The panel was hosted by Mark Bernfeld, D ’78, Co-Founder, MentorWorks Education Capital. They spoke with Jeff Crowe D’78, Managing Partner of Norwest Venture Partners and Peter Kidder D’83, Head of Loan Administration at Silicon Valley Bank., D’19, an associate at Silicon Valley Bank, and
Kidder and Crowe both emphasized that entrepreneurs should take any respectable valuation right now, rather than stretching out their funding process by looking for the best possible offer. In reality, the market is consistent with valuations. Even if there is a small variance, it won’t make a significant difference long term, they said.
Crowe, who was an entrepreneur himself before getting into venture capital, shared that he once took a partnership that wasn’t the highest valuation, but was the best fit.
“I didn’t take the highest valuation on a series B, because I wanted a certain set of investors,” he said. “That’s way way more important than a 5% higher valuation from someone who doesn’t understand your business as well.”
He acknowledged that it’s difficult for entrepreneurs to not continue chasing the highest valuation, for themselves and their early investors. But ultimately, the right partnership will result in more growth for the company, he said.
“It’s very emotional,” Crowe said. “You’re leaving yourself out there personally. You feel like the yesses or no’s are personal affirmations of your value and the work that you’re doing. But you’re going to be at this for a long time and having the right partnership makes all the difference.”
Kidder said that’s more important than ever with the pandemic ongoing, and possible political turmoil depending on the outcome of the election. Right now, investors and lenders are nervous about economic uncertainties, so having a team that will stick with your company is critical.
Crowe agreed. “When times get tough I’ve seen different banks react very differently,” he said. It’s important that entrepreneurs use the same care selecting debt partners as they do selecting equity partners, he said.
Kidder added that right now, times are tricky for all businesses. He values when entrepreneurs and founders are honest with him about their challenges.
“When someone comes in and is talking about everything going well, I’m like ‘no, it’s not,’” he said. “Be as transparent and clear as possible with your lender. Then, we can work together.”
With ongoing uncertainties, Kidder counseled that start-ups should keep cash on hand to get through the next 12-18 months. Investors and lenders also appreciate seeing that companies have a plan B in place, for everything from supply chain or customer acquisition, in case systems are interrupted by the pandemic.
“You have to maintain flexibility,” Kidder said. “You have to be ready for someone having trouble.”
The logistics of getting capital have also changed. Crowe noted that six months ago he would have laughed at the idea of writing a $20 million check to an entrepreneur that he had never met. Today, he has done that. He’s taken road trips, met entrepreneurs in parks and done deals entirely remotely.
Kidder said that perfecting your Zoom pitch is critical right now. With in-person meetings limited, entrepreneurs should do anything they can to build a relationship with potential investors and lenders.
“You have to work a little harder at it these days than you did last year,” he said.
The pandemic has been challenging for startups. It has focused attention from investors and lenders to industries like telehealth, that are thriving, while making them wary of industries like travel that have been heavily impacted. Still, Crowe said that the pandemic is also a time for innovation.
“You don’t want to just survive COVID,” he said. “How can you come out of COVID as a healthier company?