Corporate venturers will likely continue to back portfolio companies but the handshake gap could mean a decline in new deals, Lisa Lambert, founder and president of National Grid Partners (NGP), told Global Corporate Venturing.
Lambert heads NGP, the innovation and investment arm of electricity distributor National Grid, and said that although the unit is using techniques like video, phone or text more actively, not being able to meet prospective investees face to face, visit their headquarters or see their product has an effect.
“We are investing multiple millions of dollars in these companies, and so you really need that hands-on experience,” she said. “Oftentimes for investments, we may go to their site and meet them in person half a dozen times before we take it through our process.
“I don’t think we can get around that but what we can do is delay it a bit, use virtual as much as we can, but we wouldn’t make an investment decision at this point without having some other way to meet in person and get to know the team, talk to their customers – which is something you can do virtually but not all of it. We are hoping it is not a long and protracted work-from-home, shelter-in-place mandate, but we are managing in the meantime.”
NGP was launched in late 2018 and has since racked up 18 portfolio companies and three fund-of-fund investments, exiting network security software provider Aporeto and edge computing software platform Pixeom along the way.
Lambert expects follow-on investments to be less of a problem as relationships have already been established and the legwork has been done. NGP can do preliminary research on startups before making an investment decision but ultimately wants to meet in person before making a final decision. That is a pattern that may well replicate itself across the VC space, and companies will be vulnerable.
“I personally think it is an opportunity to invest and engage, because the industry slows down dramatically at this time,” Lambert said. “And there are companies out there that are going to need funding – it’s a tricky time for them to navigate because they want to minimise dilution and they need capital, so they are going out to a market that is shutting down or slowing down.
“It is tough for the companies, and I think the VCs have all kinds of latitude to be opportunistic and invest in a downturn at reasonable valuations – good valuations, you could even argue – or just wait and see.”
NGP’s main focus areas are energy technology and IT products that can help it manage its activities, and neither are sectors Lambert expects to be hit particularly hard in comparison to more openly vulnerable industries, but the general downturn will inevitably lead to longer sales cycles that impact revenue for companies.
“The energy sector is not going down,” Lambert said. “We need to continue to do business and provide electricity and gas services to our customers. But I do think the sales cycles are going to drag down, which will be harmful to portfolio companies and companies in general.
“On the IT side there are probably some sectors that are a little more vulnerable, but I think there are some that have a lot of upside. Cybersecurity, artificial intelligence, edge computing: anything that helps you run your business more efficiently should be attractive during this time.
“Some of the services sectors we have been hearing and talking about are going to have difficulty because those are expendable services during a pandemic. But you are going to need cyber and operational technology to help you make better decisions, improve customer experience, predict maintenance, and manage your network operations in the case of National Grid,” she added.
“Those won’t ever go out of style, so I think during the downturn those will continue to get investment and some of the others are going to have a harder time.”
