Just as most business functions are pausing as the coronavirus pandemic hits the United States, the outbreak has also impacted the venture capital market.
Clay Gordon, the managing partner of the Denver based venture capital firm Stout Street Capital, said the company is currently putting new investment on hold to be supportive of their current investments.
Gordon met his founding partner, John A. Francis, at a family office in Denver. Noticing that their skillsets complement each other for venture capital funds, the two co-founded Stout Street Capital in 2016. With Francis coming from a quantitative background, the company adopts a quantitative investment as opposed to most other Colorado investors where they would go with a qualitative approach.
Having the goal of becoming a 30-plus company in mind, the co-founders felt that their unique approach to the market could better help raise capital from the investors.
“Quantitative approach is what separates us from a more traditionally qualitative approach, where investors primarily invest in the entrepreneur without much customer traction,” Gordon said. “As we do value that, we wanted to see some customer feedback in terms of revenue and how those revenues can be based on the valuation.”
Primarily focused in the middle of the country, where capital is scarcer, Stout Street Capital has invested in 50 early-stage tech companies since its establishment.
Due to the current situation with coronavirus, Gordon said they have been much more defensive when it comes to investments. Stout Street Capital has decided to pause on taking in new investments to make sure the money came towards existing companies. They also make payroll to the companies that are more important as a lot of customers have drawn back on making purchases. "We want to make sure all companies can succeed through this time," Gordon said.
While the coronavirus pandemic had affected many businesses in the nation, among the 50 companies that Stout Street Capital invested in, several companies have nevertheless benefited from it. "It has been a mixed bag," Gordon said, "it really depends on the industry."
For instance, a couple of companies in the health care sector, where one of them is a telemedicine company, is doing pretty well. On the other hand, service-based companies such as tech-enabled service, where someone would show up at the door to help out, are getting hurt.
Stout Street Capital is also hosting its second UNMET conference in May to attract and bring venture capital to invest in companies locating in the middle of the country. Originally scheduled to held in Arizona, the company has decided to shift the event to a virtual conference as it would allow a platform for entrepreneurs to raise money at the time when very little venture activity is happening.
On a final note, Gordon advised that entrepreneurs should focus on retaining customers even if it means cutting back on their contract value. He also noted that right now isn't the best time to hire new employees, but to ensure that your budget can remain low.
Published on Kigyo Gaikyo May 2020
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