Survey results: Midwest VC activity during COVID-19

  • Increased macroeconomic risk or uncertainty justifies a higher required rate of return. This translates to a lower valuation entry point, all else equal.
  • Valuations reflect growth potential. While it is easier to talk about multiples based on ARR or trailing revenue, it is more accurate to consider valuations on a forward-looking basis. For example, a SaaS startup that raises at 20x ARR may really raising be at 10x expected ARR a year from now. When revenue growth slows down or declines, valuation multiples collapse, and you will need to emphasize the longer-term upside story.
  • VCs invest in growth. They like their dollars to be invested in sales and marketing (which increases revenue) and/or product development (which translates into new or stickier customers, higher revenue per customer, more defensibility). This usually results in a meaningful return on invested capital and an increase in valuation. In the current environment a good return on newly invested capital is much harder to achieve.
  • If your valuation is likely to go sideways for 12–18 months due to a combination of lower revenue trajectory or valuation multiple compression, VCs will feel like they are better off waiting to invest. You will need to convince them of responsible cash management and an ability to still provide upside, either through a lower-than-hoped valuation today or ability to execute through this crisis. Be scrappy, be resourceful, be creative.
  • Total number: 68
  • Responses reflect submissions from April 15th to 19th 2020.
  • 58 VC funds, 4 family offices, 3 corporate VCs, 2 angel groups, and 1 angel group/VC fund hybrid.
  • 25 in IL, 8 in WI, 7 in MI, 5 in MN, 5 in OH, 3 in MO, 2 in IN, 1 in IA, 1 in KY, 2 in NE, plus a few others/undisclosed.
  • 41 “early stage” (Pre-Seed to Series A), 15 “mid stage” (Seed to Post-A), 12 “later stage” (investing through Series B or beyond).
  • End-market investment preferences: 63 B2B, 47 B2B2C, 40 B2C, 20 GovTech, 3 Consumer-only specialists.
  • Business model preferences: 63 SaaS, 43 Tech-enabled Services, 39 Marketplaces, 24 Hardware/IoT, 16 Consumer Goods / CPG, 19 MedTech (pharma/biotech/med devices).



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Jonathan Ellis

Jonathan Ellis

Sandalphon Capital, a Pre-Seed to Series A stage Midwest/Midcontinent-focused early stage VC firm