14 Jul 2020

Embracing A Changing VC Market

Telstra Ventures

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Last week, Chris Metinko, a San Francisco-based reporter covering technology, media, and telecommunications (TMT) for subscription news service MergerMarket, completed a mid-year review of the VC sector and the impact COVID-19 has had on it. The story features insights from several prominent investors, including Telstra Ventures general partners Yash Patel and Marcus Bartram.

Overall, Metinko reported that M&A activity in the U.S. TMT space halved to $80.5bn in the first half of the year when compared to last year. February was the strongest month to date, with deals totalling more than $20 billion. The slowdown began in March, and the market felt the brunt of events in April with deals amounting to less than $5 billion. Fortunately, June has seen the start of a potential resurgence with the number approaching $15 billion.

Despite this, Telstra Ventures invested more than $75m in the years ending June 30 2019 and 2020 and delivered over $35m in direct revenue to its 69 portfolio companies, which was well ahead of plan.

Of course, this does not mean investors should have high expectations for the second half of 2020. Instead, as Yash mentioned in the article, “‘COVID-19 has made us shift to a more defensive mindset.’ A full-blown portfolio analysis was done after the pandemic hit. Some of the investments that still intrigue venture capitalists are things related to gaming – with so many people still at home – health and wellness, and edtech, which took off during the crisis.”

To this end, Yash recently led Telstra Venture’s investment in FitOn, an LA-based startup that gamifies personal fitness through social workouts with celebrity trainers. During the lockdown, FitOn grew 200% in workouts, sign-ups, and friends working out together. Members racked up 60 million workout minutes in May alone. FitOn has also signed a global partnership with Weight Watchers to promote the wellness app across its five million subscribers.

Beyond this, Yash sees opportunity in consumer technology companies leveraging video game mechanics to grow and monetize. According to him, the next Uber or Snapchat could look like a game studio, employing the best user acquisition, product, and revenue talent strategies from the gaming industry. Such is his faith in the sector that he is now spearheading Telstra Ventures’ efforts to broaden its portfolio in consumer technology. So much so that it could consist of almost half of its portfolio within a few years.

Marcus added how valuations had decreased slightly. He believes that this has raised the bar to identify relevant prospects. One of the issues many VCs have mentioned is the inability to have face-to-face meetings with entrepreneurs. A lot of investments have been with people firms already knew and had some relationship with before the crisis.

While it is difficult to predict precisely how the market will evolve in the second half of the year, suffice it to say investors have a powerful opportunity to guide businesses as they help their customers navigate the new operating principles of social distancing.