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COVID-19 Webinar Part 4: our panellists answer questions around how the industry will need to change and how they are preparing businesses for the end of the pandemic

Paul Tselentis, Matthew Jones and Chris Trotter

Following on from our recent COVID-19 Webinar, we’ve been sharing the key discussion points over a series of articles.

Our panellists – 24Haymarket’s Paul Tselentis, Anthemis’ Matthew Jones and Clarendon Fund Managers’ Chris Trotter – shared their observations about how the pandemic has affected and changed businesses, discussed their approach to triaging their portfolio, and shared the ways they are helping support businesses and founders.

This is the fourth and final part of the series where our panellists answered questions submitted by the webinar participants.

The pandemic has undoubtedly impacted the way that our industry operates moving forward and when asked what he thought was going to change as a result, Paul said:

“You’re going start to question when a start-up comes to you with an expensive London base. Commercial real estate is going to be a big question mark. The sectors that we’re going to focus on are going to evolve as a result of this. What’s really throwing up in our portfolio is that different leaders respond to the challenge in different ways. It’s going to put a premium on leadership and entrepreneurial resiliency, which hasn’t really been a thing for the last five years. In terms of how we operate at 24Haymarket, we’re doing a lot more virtually now that makes us more productive. At the end of the day for us to pull the trigger on putting money, we still like to spend time and see people face-to-face. That’s not going to change, at least in the way that we invest, but it might change for others.”

For Chris, he believes that valuations were stretched before and that there will be a sense of realism coming into play at the end of this pandemic. He explains:

“There was a lot of funding chasing the few companies that were really good opportunities and valuations, where it just seemed like they were going up and up and up. I think there’s definitely going to be a sense of realism now, where the risk is reflected in the valuations that we see. I guess that depends on just how quickly some of the funds come back into the markets and whether some of the expectations will be pared back. I think it’s going to be based a lot more on what the company has achieved and what’s the medium-term goals, rather than what’s the company is telling us about the total market. I think it’s going to be hopefully a lot more realistic now.”

With the government rapidly introducing and updating schemes to help businesses through the pandemic, a question was asked over who would manage any additional co-investment money. Chris commented:

“Any fund isn’t going to be given to one fund manager. I suspect it will be delivered by British Business Bank, which is a state entity essentially. It’ll work in a similar way, I would imagine to the regional angel programme. That’s probably a precedent for this kind of funding mechanism. The situation at the moment is unprecedented and the government’s having to move at a rapid pace so I don’t think we really know yet.”

Sharing his insights, Matthew added:

“The proposal that I’ve seen refers loosely to a consortium of existing partners at VCs managing the fund. To my mind that is a non-starter. That is fraught with possibilities for being taken advantage of. I’m not saying that the people involved would necessarily want to do that but when you put certain structures in place, certain things can happen. To my mind, it has got to be some kind of independent entity/body/group if this is to be credible.”

“One thing that we’ve encouraged our companies to do is, where they think that there are opportunities or spaces to lean into, to take advantage of the new normal that’s emerging.”

While it may be hard to see a light at the end of the tunnel at the moment, businesses do have to prepare for opportunities that may come up in the near and medium-term. Asked how the panellists will work with their portfolio companies to be ready for those opportunities, Paul shares:

“The capital we have available now, we’re focusing that on companies that can benefit from this. We’re doling out quarter million to half a million into our portfolio where companies have a real opportunity to take advantage. My view is that early-stage companies should be the ones, if they’re agile enough with the right sort of backing to benefit from this shift. It doesn’t make any sense to starve them of capital. There are businesses within our portfolio who might be consumer facing or leisure facing where throwing more money in is just throwing good money after bad. We’re not going to be doing that unnecessarily. I think the best possible use of your best capital right now is shoring up the stuff in your portfolio that is best placed and has the right entrepreneurs to be taking advantage of this rather than going and looking for new opportunities. New opportunities will come in due course and the valuations are likely to stay interesting for a while.”

Explaining what they’re doing at Anthemis, Matthew says:

“One thing that we’ve encouraged our companies to do is, where they think that there are opportunities or spaces to lean into, to take advantage of the new normal that’s emerging. Try and make it as data-driven as possible. One of the companies that we invested in got in touch yesterday with some pretty remarkable stats as to how their customers are now using the platform, which I don’t think we would have ever expected and that’s now really ignited a conversation around should we be allocating a little bit more resource to customer success and even perspective BD activities. We’re picking up signs from the data that suggests that maybe it’s a product that’s a little bit more recession proof than we’d anticipated. Keep your eyes open and have a look at the numbers is what I’ve encouraged our companies to do.”

At Clarendon, Chris believes there’s a real opportunity to hire key talent for businesses. Explaining his thoughts further he expands:

“I think it is a good opportunity to bring on key talent from other competitors, who haven’t been able to make it through this process. If you can identify really good candidates during this time and bring them on board, then you’ll come out of this crisis in a much stronger position. We’ve just been encouraging our companies to think about the future and how can they take advantage of the opportunities with the right people coming out of this? There is a lot of talent in the market right now. A lot of companies aren’t going to make it through so we’re just encouraging them to keep their eyes open for those opportunities.”

As the session draws to an end, each of the panellists shared their closing statements. Offering his first, Paul says:

“We’ve tried to approach this from an operational perspective and whatever happens with government funding will happen, and there’s probably little that we can do to be influencing that. We got stuck in very early and started to looking at our portfolio to see what works and what doesn’t, and reiterating quite quickly in this environment.”

Focusing on those companies that are strong and battling through this pandemic, Chris comments:

“Strong companies are always going to attract capital. That’s not going to change through this crisis but for everybody else, they just need to survive and like a lot of companies that are started in a recession, they emerge stronger and they go on to achieve significant growth and subsequent recovery. Those companies just need to really focus on their runway, put through cost reductions and use. We just have to make the most of a bad situation and try and come out of it as best we can.”

Finally, Matthew pointed out that physical and mental well-being is just as important as keeping business moving during this time. He added:

“To entrepreneurs and to investors, do prioritise both your physical and mental well-being because if you’ve got both of those in place, then you’ve got a good platform upon which you can go and make some good investments or build a good business. That’s definitely something that we’ve encouraged our portfolio to do. These are unprecedented and very difficult times. I think the one thing that gets us through them is we know this will end. We know at some point we will get through this and we’ll all look back with a few stories and hopefully with none of us have gone too crazy in the process.”

Read part 1, part 2 and part 3 of our COVID-19 webinar series.

UKBAA

By UKBAA28 Apr 2020