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Some VCs Urge Startups to Jump on Opportunities Amid Downturn; While fear grows in the market, some companies become more aggressive

Mar 2020 | Wall Street Journal (Online) | Yuliya Chernova.

Venture investors are taking stock of their portfolios and making projections about how the bear market and the coronavirus pandemic could play out.

While many VCs are urging caution, some investors believe some companies should look for opportunities to be more aggressive in the market rout by accelerating hiring, fundraising, acquisitions and marketing.

"Starting early last week, we went through our whole portfolio and decided who should play offense and who should be playing defense," said Kathleen Utecht, managing director of Core Innovation Capital, an early-stage fintech fund.

For the companies likely to see reduced revenue, including those in lending, hospitality and travel, as well as those selling software to small businesses, the focus will be on cash preservation.

Some companies started hiring freezes and likely will move into layoffs, she said.

But health care and some other sectors may see an opportunity to expand, she said. "For some of our companies with good cash positions, it might be a good time to pick up talent" and make acquisitions, Ms. Utecht said.

One of Core Innovation's portfolio companies, HealthSherpa, is seeing increased demand. The broker for individual health insurance plans, incorporated as Geozoning Inc., is seeing consumer interest grow as people are looking to get insured and some states are opening up new enrollment windows for Obamacare plans in view of the coronavirus pandemic, said George Kalogeropoulos, HealthSherpa's chief executive.

"A lot of people who were letting it ride [and not getting insurance] are suddenly really concerned," Mr. Kalogeropoulos said.

Boldstart Ventures has a number of portfolio companies that recently raised large financing rounds, and those companies are playing offense, said Ed Sim, founder and general partner at the early-stage firm focused on enterprise software.

"A couple of companies have term sheets now to buy companies," Mr. Sim said.

Snyk Ltd., a cybersecurity startup that recently raised $150 million in new funding, is accelerating the hiring of engineers and designers to invest more in product development now, said Chief Executive Peter McKay.

The company had plans to add about 100 people in those roles this year, but will bring them onboard in the first two quarters instead, he said. That way the startup hopes to be ready with new features and products next year, when the market might be back in full gear, he said. Now is also a chance to hire top talent, the CEO said. "It's not going to be as competitive to find really good talent," compared with a few months ago, Mr. McKay said. Meantime, Snyk is slowing hiring in sales and marketing.

Jonathan Keidan, founder and managing partner at consumer-focused fund Torch Capital, said he expects marketing costs to drop, as big advertisers pull back. That means some companies can take advantage of the "break in pricing" and accelerate their content push.

"We are in discussions with a couple of our later-stage companies to put some bigger checks in, where they can really use that extra cash offensively," Mr. Keidan said. Some companies that weren't previously fundraising are becoming more open to the idea of raising money "to get bandwidth to move faster in the current environment," he said.

He added that for most startups, that's not an option, and he expects the consumer sector to suffer, overall. "As consumer demand drops and supply drops, it's a perfect storm," Mr. Keidan said.

He has warned Torch portfolio companies that they can expect to face a six- to nine-month period with lower sales and less ability to raise capital, he said.

At the same time, telemedicine companies might see more consumer interest, he said. Torch portfolio company Roman Health Ventures Inc., known as Ro Health, for example, has started offering free telemedicine visits with doctors for people worried they may have contracted the coronavirus.

HealthSherpa's Mr. Kalogeropoulos said he is preparing for business to pick up in the long term, as well, because individual insurance is often bought by people who lose their corporate jobs. If the economy takes a nosedive, that may be the new reality.

But for companies like HealthSherpa, growth requires adjustments. HealthSherpa hired about seven new call-center operators in the past few days, while moving employees to work remotely. That created costs, Mr. Kalogeropoulos said, and challenges.

Write to Yuliya Chernova at yuliya.chernova@wsj.com