Venture Capital during an economic downturn How VC firms operate during the covid-19 crisis

Abstract

This study aims to investigate how Venture Capital firms are influenced by the economic effects caused by the covid-19 pandemic, particularly how the screening and investing processes, as well as the management of the portfolio companies are affected. A qualitative research methodology was applied where semi-structured interviews were conducted with Venture Capital firms situated in Sweden. A generalized outcome from the Venture Capital firms concludes that the screening processes are taking longer, there are fewer new investments and the management of the portfolio companies is more active, there is in other words a more frequent communication between Venture Capital firms and their portfolio companies. The active management of portfolio companies also consists of forming strategies to cope with the new situation, cut costs and establish new financing. Further, the study shows that a few of the VCs are well-positioned to continue investing during covid-19 and aim to make favorable investments due to lower valuations on startups. What distinguishes these VCs compared to the rest is access to capital and forward-looking investment strategies where substantial funds are allocated to follow up investments of portfolio companies.