Investor Keith Delhagen describes today's economy as a geologist fears.
"All the seismic plates are spinning at the same time," he said. "This is a coincidence. This is unprecedented. None of us have an answer."
In January, Insider asked Delhagen, who invests in sports and technology companies through the Oregon Sports Angels, for his investment outlook for 2022. With the uncertain economy, Delhagen's investment strategy has changed dramatically. The same can be said for Payam Daniel Abbassian, head of Steve Ahern's KB Partners and Path Ahead Ventures.
All three investors are on the list of venture capitalists who regularly invest in sports, medical and wellness companies.
Across all industries, venture funding fell 23% to $108.5 billion in the second quarter, with 7,651 deals, according to CB Insights. This is the largest 1/4% decrease in deductions in a decade.
Delhagen, Ahern and Abbasian are still writing checks, but they are taking a closer look at companies and tracking how founders spend money.
"Maybe it's not easy now.
Delhagen and the Oregon Sports Angels recently added a new screening question when deciding whether to invest in a new company: Is there a real market need for this company's product?
"Maybe now it's easy for us to say no," says Delhagen. "If you can show a clear and distinct need for something, it's at least based on that filter."
The Oregon Sports Angels, who celebrated their fifth anniversary in December, had a big day in June. Invest in Wild Rye, a women's outerwear brand. He has now invested more than $6 million in nearly two dozen companies.
"We're still in the game and we're still investing," Delhagen said.
However, he added that some of the group's angel investors have shifted their money from venture capital to real estate, a haven during the economic storm.
He also said the company needs more time to close deals. Transactions that took 30 days last year can now take 60 days.
How fast can startups become profitable?
Chicago-based KB Partners, which invests at the "intersection of sports and technology," recently closed the company's second fund, a $125 million hedge fund. The initial financing of the company was around 40 million dollars.
"We have $125 million that we have said our investors will commit to over the next several years," Ahern said. "We are doing business as usual."
Acher called the company's investment approach "conservative." Recent investments include Omorpho and Tixologi, a blockchain-based ticket reservation platform.
KB Partners typically exits investments within five to seven years and invests in companies that are not yet profitable. One thing that has changed, Aher said, is that the company is paying more attention as its founders expect net income to go from the red to the black.
"We're definitely looking for companies that can break even a little bit faster," he said.
KB Partners also requires portfolio companies to have large financial leads, meaning how long they can expect to receive large sums of money from investors.
"Perhaps in the past we would have been looking for a lead for 12 to 18 months," Ahern said. We are almost 24 months old now.
Understand why and where founders spend money
When outdoor activities retailer REI launched its $30 million Path Face Ventures fund in October, its goal was to support founders of color. Abbasian, the fund's head, said that despite the economics, he is still "committed to writing more checks."
"While venture capital is down, founders have not," he told Insider in an email. “Historically, founders of color have been overlooked and under-resourced, so while there has been less capital involved overall, we are doing everything we can to support founders.”
However, like other investors, Abbasian said the fund spends more time learning about the business.
"We will continue with the same process, but we are looking at some things more closely," he said. "Between them, they understand where and why the money will be spent in the next 12 months, what challenges the company will face in the near future, such as supply chain issues, and how the founders will respond to these challenges.
Abbasian advises founders to watch costs when faced with a market downturn.
"Any guess is the best guess on when things will change, so we think the best we can do right now is to focus on the actions that drive the business and their key metrics."
