How COVID-19 Reshaped Venture Capital: Insights from Threshold Ventures’ Josh Stein
For 16 years, Josh Stein has navigated the venture capital landscape, rising through the ranks at DFJ (now Threshold Ventures) to become its most senior managing director alongside Emily Melton. As a seasoned investor and 14-year Box board member, Stein specializes in enterprise startups, actively supporting portfolio companies like Doximity, Rippling, and Front.
In a recent interview, Stein shared candid perspectives on how the pandemic has transformed VC dynamics, investment strategies, and founder-investor relationships. Here are the key takeaways:
Seed-Stage Investing: A False Sense of Security?
Q: With many nascent startups securing funding, do VCs view seed-stage as lower risk?
Stein: “It’s a trap to assume smaller checks mean lower risk. These investments often demand even more time and resources.”
COVID-19’s Uneven Impact on Startups
Four months into the pandemic, Stein observes stark contrasts:
- Negative disruptions: Portfolio companies in sectors like home construction faced sudden halts (similar to Redfin’s challenges with real estate agents).
- Unexpected beneficiaries: Remote-focused tools like TalkDesk saw surging demand as on-prem customer service became impossible.
The New Pace of Dealmaking
- Due diligence has deepened without the pressure of competing term sheets.
- Virtual meetings (coffees, beers) replace in-person pitches, potentially reducing unconscious bias.
- Threshold made 2 post-COVID investments and signed a third term sheet entirely remotely.
Power Dynamics: No “Mustache-Twisting” Moment
Contrary to expectations:
- Founders appear more open to building relationships with investors.
- The tech sector’s value creation still outweighs high-profile failures like WeWork.
- Later-stage VCs face the toughest challenges due to shorter timelines.
Liquidity and Public Markets: A Surprising Boom
Despite economic turmoil:
- Threshold distributed significant returns to LPs last quarter.
- Portfolio companies like Livongo (IPOed July 2019) saw shares soar from \(28 to \)100.
- nCino’s recent IPO was 50x oversubscribed, reflecting intense demand for high-growth tech.
On Regulation and Big Tech
Stein advocates for nuance:
- “Regulation often has unintended consequences.”
- Supports more nimble, less politically driven approaches to oversight.
The Road Ahead
Key watchpoints:
- Consumer spending shifts from sustained unemployment.
- Sector rotations (remote work tools thrive, airlines struggle).
- Public market optimism vs. street-level economic realities.
Stein concludes: “If you’re not bullish on tech’s medium-to-long-term potential, you’re missing the bigger picture.”
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