Axis Innovation Team | April 23, 2020
Core insights from the Axis online chat with Alan Patricof
As sharp as ever, Alan Patricof is now in his 5th (yes 5th!) decade as an investor. He was the founder of Apax Partners in 1977 (now one of the largest private equity firms that has raised over $50B since 1981) and is currently chairman and managing director of Greycroft (leading US VC firm, recently raised its fifth fund) where he is still involved daily with deal sourcing, fundraising, and portfolio management. We are pleased to have hosted Alan at several of our previous events, and he joined Axis Webinars from his home in New York for a unique 1–1 conversation about the current crisis. We covered a wide range of topics from fundraising today, growth, scaling in the US, sectors of opportunity, global issues, and more. To see the full webinar again, find it here.
Here are the core insights from the webinar:
1. Cash is king:
This piece of advice is critical and one that was heard before at our first investor webinar, showing how important it is. Alan feels that companies need to make sure that they have enough cash now to get through the next 6–12 months or longer. You need to do whatever you can to preserve the company, and be in a position to ‘save’ the company in times to come. He does feel that not that many companies will actually fail now, though, pointing out the PPP (Paycheck Protection Program) in the US as an example which is helping companies to be able to pay employees now despite their difficulties.
2. The VC world will be OK:
Having been through multiple crises in the investment industry, Alan feels that this is a more severe one, but that the venture industry still has a lot of capital and will use it. In the case of Greycroft — they have stood by their commitments and not re-negotiated any deals so far. They also managed to close a $350 million growth fund without a single investor backing away, and are very much in the market still in general. Clearly, it is still a good time to put your money to work.
3. Foreign vs domestic:
In general, these days, there has tended to be a more nationalistic approach to investing, with countries ending various agreements and relying less on foreign suppliers. Greycroft will continue to look abroad, but he feels that companies will start to look domestically more in the current times especially, adding to the general trend developing.
Alan shared that private companies should closely watch the public markets. When the markets go down — as they have now — it should also be reflected in private company valuations. Startups need to come ready with an understanding of how this current situation has affected the market and them as well. To this end, startups should not be stubborn about valuations. They need to raise enough capital just to get through the next 12–18 months, so that they can prove that they have something that they will be able to raise significant funds for in subsequent rounds. Investors are becoming more discerning, and so startups need to be realistic.
5. Pivoting your business:
Alan doesn’t necessarily recommend pivoting, but thinks that companies should take a careful look at their economic model and make sure that it is relevant in general. It’s a good time to get realistic in looking at the core structures of companies and getting in a more economically viable structure.
6. What is the biggest challenge now to the industry?
Alan expressed it is keeping companies financed appropriately to be strong enough to withstand the decline and rocky period — and come out as survivors. The time needs to be used well, and investors still need returns.
7. What are some core areas Alan is looking at?
He is particularly interested in the field of aging — not only because of the crisis but as a longer-term area with a huge opportunity. He is thinking of spinning something out in this field, as it is an interesting new area in growth but is not serviced well in general — both in goods and services and in terms of backing older entrepreneurs. He is also particularly interested in the field of audio tech.
8. The startups:
We also heard pitches to Alan from Bringoz, a logistics software solution, and Jifiti, a point-of-sale financing solution. He certainly put them in the hot seat, especially wanting to know how they differentiate themselves from competitors and asking direct questions about fundraising and customers.
At Axis Innovation, we pride ourselves on learning from the best, and certainly will consider Alan’s words as we continue our work in connecting the best startups with global investors. Look out for our next Axis Webinar soon!