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Startups have flagged their grievances regarding angel tax provision, which they considered was not friendly to them. Photo: iStockphoto
Startups have flagged their grievances regarding angel tax provision, which they considered was not friendly to them. Photo: iStockphoto
wsj

Coronavirus recasts startups’ courtship of investors

Founders master Zoom techniques, and venture capital firms triple-check references, without in-person meetings

For startups and venture-capital firms, investing used to be a decidedly low-tech exercise. They would try to draw attention at industry conferences, size each other up over long lunches, belly up to the bar or make their pitches during walks along San Francisco’s waterfront.

In the pandemic era, entrepreneurs and investors are having to get more creative.

From elocution lessons to highway signs to serenades, startup founders looking to raise money in the Covid-19 era are developing new strategies to sell themselves and their companies—which might be only an idea on paper—through a video chat app on their laptop.

Chris Nicholson, chief executive of San Francisco-based AI startup Pathmind, is taking voice lessons to improve his inflection in conversations with investors over the phone or video chat.

“We’re reduced to a sound and an image,“ Mr. Nicholson said. He does voice warm-ups before important calls. “Having an emotional range and making an emotional connection—that’s what moves people."

Investors, meanwhile, have had to adjust to entering multimillion-dollar contracts and yearslong relationships without sharing a coffee or even a handshake. For the venture-capital firms, they’ve had to recalibrate how they determine an investment, becoming more thoughtful about the metrics they use and opting for criteria that don’t include eye contact.

Ambar Bhattacharyya, an investor with Maverick Ventures in San Francisco, said one founder picked up his acoustic guitar during a fundraising pitch via Zoom and strummed “Hotel California" by the Eagles. Maverick later invested.

“It’s hard to have a new memorable experience when every day seems like the one before," Mr. Bhattacharyya said.

Startup fundraising, already a weary, monthslong task, during lockdowns primarily became a slog of hundreds of calls over the now-ubiquitous video communications app Zoom, exacerbating the monotony of working at home and sheltering in place.

“I have trouble keeping all of these investors straight so of course they are going to have a hard time remembering me," said Vanessa Didyk, who is fundraising for college recruitment and retention app ZeeMee, where she is chief executive. “That part I worry about—that it all just looks the same."

Entrepreneur and investor Phil Libin, who is routinely involved in fundraising for companies that are part of his All Turtles startup studio, quickly wearied of Zoom and tried to liven up his meetings by hanging a green towel as an improvised green screen and performing faux weather forecasts.

“It was a lot of me screwing around," Mr. Libin said. After more experimenting, he stumbled upon a product that became its own startup. In June he closed a $4.5 million funding round for mmhmm, a video communications platform that allows for animation and customized backgrounds.

“You have to at least be the most entertaining thing that [investors have] seen this month if not this year," said Mr. Libin. “It is very much about performing. A lot of this performance became very difficult over video."

Things were tougher for Tellus CEO Tania A. Coke, who was closing in on a funding round in February for her medical-device startup when the pandemic roared into a global crisis and the stock market cratered. It took until July to close her $7 million financing.

“We have a hardware company and people want to touch and feel your product, especially at this early stage," said Ms. Coke. “We aren’t in a place where we can just send a product in the mail."

Entrepreneur Sahin Boydas had an idea outside the virtual realm. To get investors’ attention, he sponsored several miles of Interstate 280, a main corridor in Silicon Valley, through California’s Adopt-A-Highway program that cleans up litter. He placed six signs emblazoned with his startup’s name, RemoteTeam.com, along the highway.

The route is frequented by venture capitalists, and he was betting that enough were still on the road despite the pandemic. It worked: A few investors who saw the signs looked up Mr. Boydas and invested $250,000.

“I am getting more signs because it definitely paid off its cost," he said.

Mr. Boydas started RemoteTeam.com, which supports companies with remote workforces, at the end of October. He attributes his prescient timing in part to a trip to Costa Rica in March 2019. While there he participated in an Ayahuasca ceremony, an indigenous ritual involving a plant that causes vivid hallucinations. Mr. Boydas said there he had visions of the pandemic, and with that, a business opportunity.

“Ayahuasca showed me empty streets, a remote world," he said.

Some venture capitalists are traveling by plane again to meet startup founders face-to-face, and others have discounted remote meetings no matter how creative.

“I won’t make an investment in a startup I have not met," said Bob Ackerman, a longtime cybersecurity investor who likens his relationship with early-stage startups to a courtship. “Would anyone meet someone and have six Zoom calls and say, ‘Will you marry me?’"

Others say virtual investing has pushed them to do more research on startups and place less importance on a founder’s personality, charm or appearance. TJ Nahigian, a partner at San Francisco venture firm Base10, said his firm is doing three times the number of reference checks on founders while doubling the number of investments from before Covid-19.

To that point, Cheryl Cheng, an investor at BlueRun Ventures, said people may attach too much importance to in-person meetings for gauging someone’s character.

“We might overestimate the value of an hour face-to-face with a person," she said.

Write to Heather Somerville at Heather.Somerville@wsj.com

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