OMERS Ventures, the venture capital investment arm of OMERS, one of Canada’s largest pension funds, has conducted extensive research on the state of the venture capital landscape throughout the pandemic-related shift to virtual work. Their research—which started three months into the pandemic and included follow-up research one year later—tells the story of an industry that, like so many others, has had to pivot in significant and far-reaching ways.
Venture capitalists, like millions of others, have been forced to adapt to virtual work. OMERS’s research revealed that, within a year of the start of the pandemic, 97% of venture capital firms had completed at least one fully remote deal. So how have venture capitalists adapted their deal flow management and other business practices to meet this remote deal-making process? Here are four major ways VCs have altered their deal-sourcing and business strategies to meet the change to a remote workforce.
OMERS’s research indicates that VCs are spending more time sourcing deals than they were pre-pandemic. As sourcing consumes more and more of their day, leading VCs are fighting to make sourcing more efficient by prioritizing founders and teams whom they met in person prior to the pandemic.
Additionally, they are prioritizing deals with recognizable names on the cap table. Stephen Nalley, founder and CEO of asset management company Black Briar Advisors, notes that it is very difficult to get to know someone over the phone and even more difficult to write a founder a check for millions of dollars when you’ve not spent some quality time with them.
Completing deals in a primarily digital environment has required that technology play a new, outsized role in facilitating relationship and deal management. The ever-increasing deal velocity VCs face has forced them to not only adapt to remote work but to adapt and move faster than ever before. Teams now rely on their virtual networking skills to find their best deals, even as they fall back on dealmaking with people they knew prior to the pandemic.
For leading VC firms, this networking is supported by relationship intelligence—the insight into your team’s network, business relationships, and customer interactions that help you find, manage, and close deals. The “intelligence” includes things like who has the best relationship to a contact who can advance a deal, whether anyone on your team knows anyone at a target organization, and whether that organization has new hires with whom your firm can build new relationships.
By leaning into these technologies that provide relationship intelligence, teams are able to continue finding and executing on deals even without being able to mix and mingle at conferences and business dinners.
The pandemic may not have stifled the industry as a whole, but in order to overcome the rapid changes to sourcing, managing, and closing more deals at the team-level, VC firms had to find ways to continue to invest. Beyond using relationship intelligence for deal sourcing and relationship management, deal teams have had to become even more data-driven and purposeful with their decision making to stay competitive.
By adopting the right analytics tools, top VC firms have been able to establish and measure against clearly set KPIs. Recovering from operational setbacks caused by pandemic-induced process changes is easier when those changes can be visualized in personalized dashboards that track the data that matters to your team.
When you’re processing hundreds of opportunities simultaneously across team members, it’s important to understand where your highest-quality deals are coming from and where you should be focusing your time.
Keet van Zyl of Knife Capital points out that entrepreneurs need to be well organized in order to raise funding remotely with clear pitch decks, well-populated data room information, and quick response turnarounds. This becomes even more important after investment when timely and transparent reporting are nonnegotiables. Kuo-Yi Lim, a managing partner at Monk's Hill Ventures shares that, throughout the pandemic, he has observed that founders have stronger convictions than ever before.
He has also observed that they are more thoughtful about their business plans and value propositions, as well as clearer in their purpose and in their explanation of why they can persist through hardship and volatility. A key part of maintaining high-quality deals has stemmed from finding and supporting those founders who have made the same commitment to operational excellence that your firm has.
2021 has shattered previous records for mega-deals (by the end of Q2, more than 198 VC deals met or exceeded $100M), and, according to Pitchbook, deal count is trending upward across all investment stages. This all suggests that both investors and founders have grown accustomed to conducting business virtually.
Yet the ways in which venture capitalists manage deal flow virtually is different in important ways from how they managed deal flow before the pandemic. Despite quick pivots and often initially improvised changes, there are constants that remain, including the critical roles of technology and relationships.