SALT LAKE CITY — Even in the midst of a global economic crisis, great business ideas can find fertile ground and take the first steps toward success.
As the U.S. and the world were still reeling from the Great Recession — a crisis that lasted from late 2007 until mid-2009 and in which American households alone lost over $19 trillion in wealth by some estimates — Northern California tech giants Uber and Airbnb carried their first passenger and hosted their first stay on the road to becoming multibillion-dollar behemoths.
On Friday, a trio of Utah venture investment veterans participated in a virtual conference hosted by coworking innovators KIln about what may be in store for Utah entrepreneurs who are working to grow their companies or start new ones as debilitating economic impacts follow in the wake of COVID-19.
Most of those who may have been still perfecting their proposals for potential investors as the pandemic hit may have to delay those plans or reconfigure their startup strategies to rely on self-financing as venture investment will likely be a tougher get in the foreseeable future.
But for some, the near- and long-term paradigm shifts brought on by the pandemic may show the way forward for even bigger ideas.
Ben Capell, partner at Cottonwood Heights-based Peterson Ventures, said his firm is moving forward with two funding deals that were in the works before COVID-19 erupted into a global pandemic. He believes that even as a chill descends on overall investment volumes, some great opportunities will evolve for both entrepreneurs and those who back them.
“Great companies will get funded,” Capell said. “Some of those companies will be built around the current environment, and solving problems that are relatively new. There’s opportunity to build solutions around those problems.
“Finding opportunities to invest in those businesses is what we’re looking for.”
Sid Krommenhoek, partner at Lehi’s Album VC, said that he and is fellow investors don’t earn money by managing the up and down cycles of the economy but instead by backing successful business ideas, no matter when they appear.
“Good companies will be built through these times,” Krommenhoek said. “We are paid to invest in the best asset at any given time in any cycle. To be clear we will be investing.”
Gavin Christensen, founder of Cottonwood Heights-based early stage investment specialists Kickstart Seed Fund, launched his firm in the middle of the Great Recession in 2008. He noted that, unlike that economic downturn, the base financial systems pre-pandemic were solid and expects that startups that are already off the ground could see a surge in opportunity, if they can make it through to post-COVID-19 recovery.
“In the summer of ‘08, we didn’t know what the future looked like,” Christensen said. “When we get to corona ... the (financial system) fundamentals are there. Those that survive are probably positioned to win and win big.”
When it comes to which entrepreneurial efforts will or will not make it to potential recovery opportunities, the investment experts say it all comes back to business fundamentals, continued innovation and strong leadership.
Cappel said those who need cash to navigate the new economic realities will have a tough time in the venture world but should be able to find attractive debt financing options in lender markets that are offering rock-bottom interest rates. He noted every CEO should be reevaluating fixed costs and looking for ways to eke out some savings and, he suggested looking back at past funding rounds in which some enthusiastic potential investors may have been left out.
“If you’ve raised some capital, talk to people who are maybe interested but didn’t get in,” Capell said. “Bring that capital under the balance sheet.”
And he said those business leaders who remain unemotional and grounded in reality about fiscal management will have the best survival rates.
Krommenhoek said companies should be realigning their plans to navigate a trough that could extend through the next two years and looking to current investors for capital infusions, if needed.
“Your pool of investors that you are pitching now should be your initial investors,” Krommenhoek said. “New capital is going to be scarce.”
Christensen said ongoing innovation and sharp assessments of emerging opportunities, combined with gritty leadership, will show which companies have what it takes, and which don’t.
“The fundamentals are going to be there to really rally back,” Christensen said. “Recognizing the opportunities ... and getting back to the core of Utah entrepreneurship, scrappiness, efficiency, strong product-market fit.
“Soft companies that rely on capital and bad unit economics are kind of toast in this environment.”