Sarah Noeckel is responsible for Northzone’s Seed investments and is based in London. Previously, Sarah was a B2B SaaS investor at Dawn Capital. Prior to Dawn, she spent 3 years at the French startup Early Metrics, where she joined as employee #5 and led the firm’s launch in the UK and Germany. Gwen Salley, Head of Investment & Services at STATION F, interviewed her to learn more about Northzone is managing the crisis and his vision on the ecosystem in the coming months.
What is the concrete impact you are seeing on your portfolio companies?
It obviously depends on the portfolio you have but no matter the industry, everyone is currently reforecasting sales drastically. At Northzone it’s a mix, Tier being in mobility got hit a lot harder obviously but we also have companies like Hopin, which is an online events platform, has seen ton of gross as companies are looking to bring their events online now. The events industry is on one side being hit hard but on the other hand, all the products and companies enabling a shift in transitioning to digital is well positioned even after the virus as it should become a sustainable trend to bring events online.
In larger companies, CIO and executive will have more pressure to increase their spending for collaboration software and are looking for cost reduction through automation. Everyone being an enabler in that space is also very well positioned. In Ecommerce, it’s been surprisingly rebalanced. Consumer spending is dropping but people reallocate their spending by buying more for their homes and less on clothes for example. It will be interesting to follow how sustainable these behavior shifts are in the coming months as it will impact many industries.
What advice are you giving to your founders facing a massive slowdown in their operations?
We hear a lot about cost-cutting and how you need 18 to 24 months of cash in the bank. That’s definitely true, you need to cut as deep as possible as it’s the time to be lean. Prioritizing loyalty hiring is also key and focus on these truly passionate employees. They are less likely to leave and more likely to accept less salary and more equity which is a good lever for increasing your runway. It’s a good time to connect with customers, deepen the relationship and better frame their needs. We are living a time of behavioral change for customers and it is key to spend time understanding them and reflect these new behaviors on the business as quickly as possible.
Internally, we advise our founders to be extremely transparent through this tough period. Even if everything is slow, it’s important to communicate numbers, strategy and be as transparent as possible with all the different stakeholders of the business
Lots of funds are saying they are “open for business”, what’s your take on this and what is the situation for Northzone? Have you signed any term sheets since mid-march?
The reality is that most funds are focused on their portfolio companies. There has been a shift since Easter where we see VCs getting back out there. Most investors don’t have the mental space and mindset to fall in love with founders at this time. At Northzone we just closed a new 500m€ fund at the end of last year and we are committing to deploy in the coming months as we have enough capacity and a new seed strategy.
The reality right now is that most VCs struggle with pricing. They don’t know how to price a deal and it’s a matter of time until the market absorbs the impact of the crisis on valuation. Hot deals will most likely stay highly competitive but for the rest, VCs are struggling to price deals as the impact will depend on the overall depth of this crisis ahead of us.
How do you foresee the VC ecosystem to evolve in the coming months?
Valuations will most likely decrease and reflect market conditions but it also might put startups in a position of strength for their next round. It might also be easier for the founders as the valuations will be reasonable and entrepreneurs will grow the business in good conditions. A lot of firms will invest at a slower pace after a strong increase in the past 4 years. Another thing is that we only have 6 weeks of data and the situation is evolving rapidly.
We are seeing a lot of businesses also booming! What type of business and industries you think will see sustainable growth in the future as a result of this virus episode?
It is too early to tell as we are a few weeks in but one very important thing is that we are not evolving in a new normal. We are not simply working remotely, we are working from home during a pandemic which is far from being the new normal. There is a big shift going on yes but the changes will be deeper as organizations will have to readapt and go back to normal. Yes, remote work will become more standard and we’ll need more software to support that. It doesn’t mean we’ll replicate office habits and behaviors online. We are also seeing other trends like the “Passion Economy” with platforms like Substack, Patreon or Podia which are basically helping people launch a business and making a living out of their passion. Overall we are looking for very sticky and “recession-proof” businesses. The way we live and work will be deeply impacted by what we are going through, the way we make purchases, the way we think about travel, the way we perceive work and home, everything might be fundamentally different which creates a lot of opportunities for entrepreneurs.
What would you say to: An entrepreneur who’s thinking of starting a business in this context and to an entrepreneur who’s looking at raising funds in this context?
It’s definitely a great time to start a business now – lots of things are changing, consumer behaviors are changing, enterprises are under pressure to move so the opportunities exist.
It’s also a good time to build relationships with investors – it takes time to build those connections. We want to invest in resilient entrepreneurs so 6 months from now, knowing how the founders handle this particular period will definitely be a strong signal for us that there is potential. We sometimes know a founder for 1 or 2 years before actually investing in them. So even though VCs are still focused on their portfolio and don’t necessarily have “space” for acting quickly on new opportunities, it is a good time to focus on building strong relationships with them, if you can afford it.