©2026 Business Next Media Corp. All Rights Reserved. No.102, Guangfu S. Rd., Da'an Dist., Taipei City 106, Taiwan
What will VC funding look like post-COVID-19?
The last 90 days have brought unprecedented economic uncertainty across the world and it is now fair to ask if the tech and VC world runs into its own financial crisis. In the coming weeks, as the tech companies report their Q1 results, it will be clear where we are heading in 2020.
However, tech companies’ own projections may or may not translate directly into the way things will progress for the tech startups and VCs.
Especially, given the fact that the FANGs of the world are sitting on cash reserves larger than the GDPs of some countries. In fact, Apple and Google of the world are out shopping for the strategic companies at a discount. For instance, on April 6, Apple announced its interest in buying NextVR for US$100 million.
So what really lies ahead for the funding future of the tech startups? What will be the VC strategy for the deployment of the capital?
To understand that let’s take a look at what is happening in the VC world.
How does VC investment work
When a VC firm raises money, the capital is committed by some of the largest and most diversified institutional investors, and the fund life is approximately 10 years. In any given fund, new investments are made in the first two to three years of a fund’s life.
VCs create an equivalently large reserve to make follow-on investments through the end of a fund’s term. As a rule of thumb, investors reserve US$1 for every US$1 invested in an early-stage company. The combination of long fund terms and dedicated reserves helps mitigate the effects of turbulence on VC funds and portfolio companies.
Are VCs prepared for the downturn?
In these turbulent times, VCs have equally limited capacity to predict the future as any of us. However, the US VC industry has existed over a period of 50 years and has weathered many storms previously. So it is needless to say that there were and have prepared for this in some ways.
US venture industry has aggregated more than US$275 billion around the past five years, from 2014 through the first quarter of 2020. Using both a fund-by-fund analysis and averages across the industry, it is estimated that the industry has US$150 billion of “dry powder,” of which likely US$76 billion is already earmarked for reserves for existing companies and US$74 billion is available for new investments. Though it is hard to make predictions about the future, the present level of reserves is strong relative to any recent cycle.
While one can be cautiously optimistic about a large reserve to help startups through a fundraising drought, there are so many signs that the industry will need to slow down its investment pace substantially to protect its cash position during a crisis.
What will be the VC investment strategy going further?
Be very selective about investing
VCs have invested US$35 billion per quarter in the past two years. If the VC industry alone were to attempt to fund all current VC-backed companies at current levels, we would run out of reserves in four quarters.
Hence there will be increased scrutiny and diligence in investing, more focus on unit metrics cash flows, sustainable and profitability; over traction, and growth at the expense of high cash burn.
Having said that, funding for innovative technologies that are critical as ever in a COVID-19 world, such as personalised medicine, online education, remote workforce solutions, and reliable internet connectivity will continue to be bullish.
Prioritise existing portfolio companies**
Since 2014, there are over 10,000 companies in the US that have been funded and will need to share this capital. Many companies have exited, found profitability, or already have strong balance sheets, but many more do not have alternatives and will rely on this capital. VCs will do their part to make the most of the reserves and support their portfolio companies in these times.
Redirect focus on institutional investors for raising new funds
In good times, LP capital can come from a variety of sources including hedge funds, mutual funds, and wealthy individuals. When the cycle turns, these alternative sources can substantially pause their investing or exit the industry indefinitely, leaving only institutional investors as a primary capital source to fund promising startups.
Forcing VCs trying to close the new funds to double down their focus on one channel, put more pressure on the performance and exits of existing portfolio companies (to come out in the 90th percentile range) – translating into higher credibility for the VCs and higher chances of raising a new fund.
Employ alternate investment and fundraising tools to continue funding
VCs will employ alternate tools such as fund recycling (investing profits from old investments into strong existing portfolio companies), crossover investing (investing from newer funds into older funds), and both formal and informal co-investment vehicles with LPs that can create more capacity for much-needed capital.
This approach will help VCs mitigate the effects of a downturn and provide a boost to the industry’s reserve capacity to continue investing in the startups.
This article was first published on e27, on Apr. 27, 2020.
©2026 Business Next Media Corp. All Rights Reserved. No.102, Guangfu S. Rd., Da'an Dist., Taipei City 106, Taiwan