What this market reset means for Healthy Ventures.

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What this market reset means for Healthy Ventures.

March 10, 2020

Dear Healthy Ventures LP's,

During this period of market volatility, we've stayed in close touch with our portfolio companies.

Below is a letter we shared yesterday with our founders.

Several of them will be going out for follow-on financing rounds within the next year, so we wanted to identify likely changes in fundraising market dynamics. With all of them, we're working closely to ensure they're operating against realistic budgets to weather this cycle of market correction and emerge stronger for it.

At the same time, our work diligently continues. Company-building pervades across market cycles. The median time for a venture-backed company to exit is 8.5 years (Zoom and Uber took 10 years). So now is the time to continue our abiding strategy of proactively sourcing high-potential, sometimes non-obvious, companies with proven traction, at far better terms than possible for generalist investors.

Our abiding strategy for companies running real businesses 
Both Anya and I had were venture investors during the 2000 and 2008 market downturns. That has very critically informed the types of businesses we've invested in at Healthy Ventures. We saw first-hand then what happens to non-viable companies that solely relied on follow-on venture funding to survive. In times of capital scarcity, that model simply does not work.

During these past 5 years of a bull market, we've built a strong portfolio marked by strong fundamentals. We've invested in businesses that actually work, selling products that paying customers have validated, per distribution models that are viable at scale. We've always believed that the best buffer for a company against market vagaries is being able to stand on its own two legs.

We're in the eye of the storm. 
This coronavirus challenge puts our companies' efforts squarely in the eye of the storm. This episode will starkly highlight how backwards our front-line health system is, how ill-suited our health tech infrastructure is to withstand any stress. Their products are powering the core solutions so sorely needed now more than ever.

Whether it's powering the data asset that is literally making the COVID-19 calls like OneCodex or driving data consolidation across different types of systems as Akido and Datica are doing, we're so proud that Healthy Ventures companies are front-and-center in meeting this challenge.

Please reach out with any questions.

Thanks,
Healthy Ventures team

Anya - anya@healthy.vc, 415.728.2512
Enmi - enmi@healthy.vc, 415.902.7864
Madi - madi@healthy.vc, 360.460.7016
_____________________

Dear Founders & CEOs,

We wanted to highlight some things to think about re: COVID-19 and some of the current market instability.
 
How similar is this to 2000 and 2008 market downturns?
As you may know, Enmi and I were both venture investing during the 2000 and 2008 market downturns. That has very critically informed the types of businesses we've invested in at Healthy Ventures. As in 2000, both the public and private capital markets have been on long bull runs, in this case an historic 11 year expansion. We are due for a down cycle. It's likely that COVID-19 is catalyzing this now.

So what does this mean for my company? 
As we had in 2000 and 2008, we expect a significant slowing down in pace by folks both on the investing side and among potential acquiring companies.
Among venture investors: Funders in both VC/PE likely will become more trigger-shy. As we'd seen in earlier market correction cycles, some of this may be driven by later-stage funds opting to sit on cash to provide for their existing investments instead of adding new companies to their portfolio. Some funds may also feel pressure from their limited partners (LP's) not to make new investments. As LP's lose value in their public equities, resulting in subsequent overexposure to venture, they may ask their venture GP's not to invest quickly in order to balance that out.
Among acquiring companies: Many operating companies will slow their acquisition pace. Many may experience drops in their own market caps, effectively dampening their purchasing power. As well, their boards may want to postpone acquisitions until their own core business has stabilized amidst the broader volatility.
What are the implications on my fundraising? 
Longer time-horizon for raise: For those of you planning to raise new follow-on rounds this year, be prepared for a protracted effort. During this past market cycle, it's taken companies on average about 6 months from raise start to receiving wires. We strongly advise you to plan for 9-12 mos. instead. To allow for more runway, what can you do to trim your burn? If your top line grows 30% slower than you'd forecasted, do you still have the cash to survive to raise a protracted round?
Unit-math and cash matter most: We strongly suggest you revisit your 2020 budgets for a post-COVID-19 world. In this new environment, follow-on investors are more likely to care about cash burn, unit economics, and growth-at-a-reasonable-price (GARP).
The best businesses will still secure funding.

And to be clear, you're already operating with a distinct advantage against your early-stage counterparts. You're already businesses that actually work, selling products that paying customers have validated, per a distribution model that's viable. We pre-filtered for that before investing in you. But can you re-visit your business yet again to even more crisply operate and hit specific key metrics needed to secure a successful financing?

Several of you may need an interim bridge before a full follow-on round. Can you begin having those conversations with your board now, replete with your post-COVID19 budget? What are the best traction proof points to align around during the bridge before a subsequent round?

Some operational resources while your team deals with COVID19 disruption
Several workflow companies are offering their premium products for free during the next several months, including:
Advanced Hangouts Meet by Google
Tandem Virtual Office
We'll also shortly be inviting you to a HV Founder Slack workspace that's been curated with your needs in mind. Over the past quarter, we've been populating it with useful 'shortcuts' and references for several aspects of leading an early-stage health tech company -- be it in fundraising pitch deck templates, compensation benchmarks, etc. It's for you to connect with each other in an open, un-managed setting to swap thoughts and best practices.

We're in the eye of the storm. 
This coronavirus challenge puts all of our efforts squarely in the eye of the storm. This episode will starkly highlight how backwards our front-line health system is, and how ill-suited our health tech infrastructure is to withstand any stress. Your products are powering the CORE SOLUTIONS so sorely needed.

Whether it's powering the data asset that is literally making the COVID-19 calls like OneCodex or driving data consolidation across different types of systems as Akido and Datica are doing, we're so proud that Healthy Ventures companies are front-and-center in meeting this challenge.
 
So, THANK YOU for everything you and your teams do - day in and day out, often unrecognized.

Please email / text / call if we can be helpful.

Thanks,
Healthy Ventures team

Anya - anya@healthy.vc, 415.728.2512
Enmi - enmi@healthy.vc, 415.902.7864
Madi - madi@healthy.vc, 360.460.7016

P. S., Here's a letter that Sequoia sent to their portcos. It notes some additional thoughts to consider.