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GREYCROFT FOUNDER: For the first time ever, VCs are giving millions to founders without meeting them face-to-face. Here's how to adapt to remote investing.

Alan Patricof

  • Alan Patricof is the chairman emeritus at Greycroft Partners.
  • He writes that given the timeline of the coronavirus pandemic, VC firms will have to invest in startups, early-stage companies, and new CEOs without meeting teams face-to-face.
  • To close a deal, it'll be key for entrepreneurs to be charismatic through the phone, and have strong references.
  • Seed and round A investors should consider partnering with other firms to mitigate risk, and should prioritize thorough backgrounding of potential deals.
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The pandemic crisis has presented those in venture capital with a new phenomenon — which, in spite of my 50 years in the business, is a first.

Since we are virtually always "open to buy," to quote a retailer's expression, we are now faced with the challenge of being presented opportunities to invest in startups, early-stage companies, and even first-time CEOs, and having to make an investment decision without meeting the entrepreneurs face-to-face. Nor is there the opportunity to kick the tires and observe a working environment firsthand to get the feel of the company's culture.

alan patricof greycroft

In fact, we will most likely be faced with making the decision to invest and close the deal with money changing hands between "virtual" strangers. But we have no choice except to face this reality, or shut our investment window — which is not realistic. 

For follow on private investments or for public market investors, this is a far more common experience and easy to overcome. In the case of the former, decisions are often based on multiple prior interactions, and in the latter, the opportunity to immediately liquidate a position rather quickly and limit a loss is a viable option.

But in the case of a first-time investment in a seed or A round, it places the burden on features that have always been present — but in current circumstances, loom front and center. For the entrepreneurs pleading their rationale for an investment to a VC, a more thought-out business plan with heightened clarity, coupled with a team whose credentials speak off the page to their relevant experience, becomes of greater significance than ever.

References with substance (who hopefully could be reached easily at home) become even more important, and the more the better, with direct relevance to the experience of the management and support for the rationale underlying the business plan. Fairytales of the hereafter should go out the window.

Perhaps of equal importance, the entrepreneur would be well served to have some form of media training to be able to convey over the tube enough credibility and excitement which engenders confidence without pressing the flesh.

For the investor, it places an even greater reliance on thorough due diligence and not accepting assumptions that don't have adequate back up, particularly how they will function under present conditions if they prevail, and assumption for greater capital needs to allow for the inevitable slippage. As an added element of due diligence, it might be worthwhile to consider bringing in another venture firm as a partner in the deal who is known to your firm and whose prior judgment you have calibrated, if they bring specific insight into the addressed market or the team as a further element of confirmation.

The reality is, if present conditions prevail, we probably won't meet for the first time until a couple of months from now — and hopefully there will be no surprises. 

Alan Patricof is the founder and managing director of Greycroft. He entered the industry in its formative days with the creation of Patricof & Co. Ventures Inc., a predecessor to Apax Partners – today, one of the world's leading private equity firms with $41 billion under management. He has helped build and foster the growth of numerous major global companies, including America Online, Office Depot, Cadence Systems, Cellular Communications, Inc., Apple Computer, FORE Systems, NTL, IntraLinks, and Audible. He is currently a board member of the Finance Committee of Northside Center for Child Development in Harlem and the Board of Overseers of Columbia School of Business. He is also a member of the Council on Foreign Relations.

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