Like half of America and, no doubt, all of the inhabitants of Wakanda (given their affiliation with Disney), I watched the musical Hamilton on July 3rd on my newly acquired Disney+ streaming account. It wasn’t my first Hamilton rodeo. I have been very fortunate to have seen the musical a few times in both New York and San Francisco. Each time, including last night, it is a mind-blowing experience. For $5 a month, it’s an investment worth making.
I have read the Ron Chernow book on which the musical is based, and I can’t imagine anyone turning that dense, historical treatise (a great one, but not exactly set to a rap back beat) into what became the musical. It takes a special level of creativity and the ability to think entirely differently about the information coming into your frontal cortex.
One of the best songs in the show, in my humble opinion, is The Room Where It Happens, which is about engaging in a contentious political compromise that happens behind closed doors and also the feeling of being left out of the room where such things take place.
As I was watching the show, it hit me that there are so many allegories in the song for issues around how venture capital is conducted, including these prescient lyrics:
No one really knows how the game is played (Game is played)
The art of the trade
How the sausage gets made (How the sausage gets made)
We just assume that it happens (Assume that it happens)
But no one else is in
The room where it happens
The venture capital process is often a mysterious animal conducted in few places behind the closed doors of rooms often accessible to just a few. But after the advent of COVID-19, the investment and fundraising processes are happening in entirely different ways that are not at all typical. And specifically, no one is in the room where it happens; rather, everyone who is trying to raise money or invest it in startups is In the Zoom Where it Happens!
If you have hung around the venture capital hoop even for 3 minutes, you have heard the story about how people are the most important part of every deal. It’s true, and so is the trope that great people can make a mediocre idea soar while mediocre people can take great potential and drive it nowhere. A core part of making investment decisions has always been getting to know the entrepreneurs (and for the entrepreneurs, it should be getting to know the investors). As investors, we generally spend a fair amount of time in person with founders, CEOs and management teams. Some people do this in the office and some also do so outside the office, working hard to get to know the real person behind the idea.
In addition, conventional Silicon Valley wisdom is that you should invest in companies where you can frequently engage in person with the teams, meaning the companies should be within a short drive of your office. Either way, the room where it happens is intimate and experienced from far less than 6 feet away.
Enter Coronavirus. Now we are all in rooms that are not frequented by anyone else except, perhaps, our needy kids, dogs and cats. And instead of seeing each other eyeball to eyeball, we are all engaging with each other via Zoom; this includes investors and entrepreneurs, many of whom are meeting for the very first time in cyberspace and cutting deals in virtual rooms (hello waiter, can I please order some virtual sausage?). It’s pretty weird.
No one really knows how the
Parties get to yes (Parties get to yes)
The pieces that are sacrificed in Ev’ry game of chess
Ev’ry game of chess
So, is this bad or good for the fundraising scene? Conventional wisdom would suggest that investment would grind to a halt due to the inability to stare deeply into each other’s eyes and checkbooks, share a drink, shake a hand, or stare each other down over the conference table while drinking designer coffee from Fred’s. But that is not possible or safe right now. Instead, if you’re a venture capitalist you have three choices: 1) put down the checkbook and focus only on the existing portfolio; 2) invest only in companies you have seen before and where you have had the ability to meet management in person at some previous time; or, 3) invest in entirely fresh deals despite having never laid eyes on the actual human at the other end of the pitch deck. Number 3 is a bit of a mind-bender to most investors. And yet, it is happening.
I was talking about this topic with a group of 15 people gathered together by HealthXL, the intelligence platform and international community for digital health. Unsurprisingly, this conversation occurred on Zoom as part of HealthXL’s digital lunch program (which is great -worth checking out). The group was a mix of venture investors and entrepreneurs chit-chatting about what it’s like to invest and raise capital right now and the topic of whether or not people were investing differently or at all given the inability to penetrate the Zoom digital wall.
Surprisingly most of the investors on the call, and there were a bunch, had, in fact, made new investments over the last few months despite not met any of the entrepreneurial management team in real life. According to HealthXL’s CEO, Martin Kelly, investors are giving quite a different picture of life now vs. life during the start of this mess in March. In March most investors were saying they couldn’t possibly invest sight unseen; today they are saying something quite different. Martin added, “For investors, it’s a bit like addiction. It’s easy to slide back to investing.” Said another way:
When you got skin in the game, you stay in the game
Bust you don’t get a win unless you play in the game
One of the investors on the Zoom chat, Robert Garber of 7Wire Ventures, talked about how his fund is investing but it’s a little “bizarre.” He added a particularly interesting thought to the discussion about how investors traditionally “rely on pattern recognition when making investment decisions but it’s both an asset and a curse right now in particular.” By this he meant that the Room Where It Happens can limit diversity in investing because you tend to meet with the usual suspects. We all discussed how the Zoom Where It Happens can open up a whole new world of pitch opportunities from people who investors have not previously met in geographies where we have not previously considered deals. Since it doesn’t really matter if the company is 5 miles away or 1500 miles away if no one can get together, maybe it’s time to open our eyes and minds to more Midwestern startups? More decentralized management models where management teams are dispersed by design? More diverse executives (finally!). Woo hoo! a silver lining to the coronavirus may have at long last been identified.
Amplifying on this thought, Marta Gaia Zanchi, head of Nina Capital, pointed out that attending conferences in person, such as the JP Morgan Healthcare Conference, has gotten so expensive that only a few (and they are the usual suspects) can afford to attend anymore. As a result, Zoom is the great equalizer, enabling all to engage equally through a free piece of software where everyone can have the same WIFI outage, regardless of how fancy they are or who holds what checkbook. Nina Capital has made 7 investments without having ever seen management in person.
So maybe James Madison of Hamilton, the Musical was right:
Maybe we can solve one problem with another and win a victory…
And as if seeing into the future (#irony), he follows that up with…
Wouldn’t you like to work a little closer to home?
Good luck to all who are in the Zoom Where It Happens. If you’re an entrepreneur who actually gets funded sight unseen during this time, you might consider shouting “Click-boom then it happened!”
And for those who have yet to either see Hamilton live or fall victim to Disney+ advertising, here is the original song for your enjoyment