Work-at-home VCs are changing how they do deals, and one of Silicon Valley’s most prolific seed-stage investors says that’s bad news for startups courting new investors

As the coronavirus recession looms larger, venture capitalists are being forced to make tough decisions about how they invest their money — and relationships with startup founders are more important than ever.

The good news, says Semil Shah, one of Silicon Valley’s most prolific seed-stage investors, is that funding deals that were in the works before early March are still closing.

But, he says, the disruption and caution caused by the virus means a lot more uncertainty for startups looking to bring new investors into their next round.

“So much of this is a trust game,” Shah told Business Insider. “I don’t know in general if most VCs have the mental headspace right now to build a new relationship. I’m sure some do.”

Like much of the global workforce right now, venture capitalists are adjusting to a new normal working from home. They are taking pitches on Zoom video chats and deciding on deals in virtual partner meetings. On top of it, Shah said, “most decision-makers” have kids just outside the video frame that they’re trying to keep occupied.

The disarray means that partners at institutional firms could be more likely to pass over founders who they have no prior relationship with, because it’s too much to handle right now, Shah said.

“This is why I feel existing relationships will increase in value,” Shah recently wrote in an essay on his website. “Psychologically, it is much easier for a VC to gain conviction in writing a check when he/she already knows the CEO, some team members, and so forth.”

He added that check size matters. It’s going to be harder to convince an investor who the founder doesn’t know to write a check for $15 million for an oversize early round, than it is to collect smaller checks at the seed stage. A venture firm has to decide if its reserves would be better spent funding and reinforcing its existing portfolio.

It’s going to take longer to close deals without a relationship

Shah puts in overtime as an investor, holding partner roles at both Lightspeed Venture Partners and his own institutional seed-stage fund, Haystack.

He said he’s not closed off to meeting founders he doesn’t already know.

Haystack is establishing processes for making decisions remotely, which Shah told us might require more diligence than is typical. The firm might ask for more references or reach out to more customers. The extra effort could spread out the time it takes to make an investing decision.

Shah also wants to have a virtual coffee date with the entrepreneur before backing them, the purpose of which is entirely social. It’s not unusual for an investor to grab a meal with a founder near the end of the deals process to get a better sense of their character.

“You can’t really hide at dinner,” he said.

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