Dear Investors and Friends:
We hope you are all staying safe and healthy in these uncertain times. We at Fitz Gate (as have most of you) moved to working from home with no travel. Fortunately for us we were already very big Zoom users, so our workflow hasn’t changed that significantly. The influx of potential new investments, however, has dropped significantly as startups have recognized that the midst of a pandemic is in most cases not a great time to raise outside capital. As a result we have spent much of the pandemic so far working with our existing portfolio companies, many of whose work has changed dramatically over the past 6 weeks, with some having new opportunities and some facing material disruptions to their businesses. Fortunately, all of our portfolio companies took decisive action to attempt to reduce their burn rates and extend their runways. And one Fitz Gate I portfolio company somewhat remarkably just closed last Friday an almost $4 million follow-on financing in which we actively participated (confidential until press release). Most of our existing portfolio companies also applied for and received forgivable PPP loans under the CARES Act which provides additional breathing room. Some of our portfolio companies have taken advantage of the payroll tax deferral program, and we’ve helped others secure additional bank financings where appropriate.
At a macro level an extended recession would delay liquidity events for startups and would depress exit valuations. The other side of this coin is that entry level valuations in early stage companies should also come down, which is good for both Fitz Gate I (for its remaining follow-on investments) and Fitz Gate II (for the bulk of its capital deployment). With respect to liquidity/exit opportunities, we are fortunate that even Fitz Gate I is early in its lifecycle and can afford to wait out this pandemic (and almost all of the Fitz Gate I portfolio companies aren’t ready to exit anyway).
One Fitz Gate portfolio company recently raised a financing round. Paravel, a Fitz Gate I portfolio company that is a digitally-native luggage and travel goods company, raised a $4 million follow-on round from an existing VC investor in early March and has been doing surprisingly well in the absence of air travel. Two other Fitz Gate portfolio companies have or are close to closing funding rounds at favorable valuations but have not yet announced those rounds. In addition, through our close relationship with the Economic Development Authority of the State of New Jersey, Fitz Gate was literally first in the queue to apply for a state guarantee of Fitz Gate’s next investment round in its portfolio company Wit (NJ will guarantee 80% of Fitz Gate’s follow-on investment for 20% warrant coverage). This NJ program is quite extraordinary in that while it is capped at $5mm for all investments in the State (which is why we were sure to be first in line), it makes it very compelling for existing VCs in NJ-based startups to continue to invest in those companies despite the current environment. Kudos to the state of New Jersey for being creative and aggressive in supporting its tech ecosystem!
Other portfolio companies have expanded or created new lines of business in response to Covid-19. Spruce, a Fitz Gate I and II portfolio company that provides hotel-style services to multi-family residents, such as housekeeping, pet care, laundry, dry cleaning and more, launched a new sterilization cleaning offering for apartments as well as apartment complex lobbies and common areas. Pledgeling, a Fitz Gate I portfolio company that offers a charitable giving and social impact platform, has seen its support of Covid fundraising campaigns increase materially. Blockapps, a Fitz Gate II portfolio company that provides enterprises a blockchain-based platform to create and manage programmable business networks, has seen increased demand for its offerings for supply chain management. Cartful, a Fitz Gate I and Fitz Gate II portfolio company that helps consumer brands with a large online presence better understand their shoppers, has seen continued demand for its software as more commerce has gone online. Wit, a Fitz Gate I portfolio company, is well-positioned in its key market now that production studios are closed as a result of the pandemic and companies are increasingly turning towards authentic user-generated ad content, which is Wit’s core business. Since the New Year, Wit has run several large, successful campaigns with repeat customers such as Match.com, Current Bank, Kangaroo Security, and MANSCAPED (it is what you think it is…).
Many Fitz Gate I and II portfolio companies have seen their customers start to slow pay in reaction to the slowing economy generally and disruptions in their own businesses. Other Fitz Gate companies have seen unforeseen (unforeseeable?) issues arise as a result of the pandemic. Cheers, a Fitz Gate I portfolio company that provides products to consumers to reduce the negative effects of alcohol in a safe manner (as well as rehydration products), had one of its distribution channels disrupted when Amazon temporarily prioritized the sale of personal protective equipment (PPE) and cleaning solutions over discretionary consumer products (normal sales and distribution have since been restored). Overtime, a Fitz Gate I digital sports media company, had seen explosive growth over the past 3 years before the pandemic stopped all sports from being played and delayed Overtime’s Series C round (they are fortunately in a solid cash position). The Overtime team has been creative with the new content they are rolling out in a world without competitive sports (see photo below), and their viewership remains up (1.6 billion views even in April). In terms of content Overtime has run the gamut from highly produced competition shows (shot pre-covid): Overtime Pre-Covid Content to shooting with an iphone while homebound and turning it into quality HD content (all this was shot while the talent was quarantined and by them, with direction and editing by remote staff): Overtime Hand-held Content. Overtime has been focused on empowering and recognizing the Overtime community for everything they are doing during this pandemic. See some of the voices of the Overtime community members here: Overtime Community Voices. Nomad, a Fitz Gate II portfolio company that provides computer vision technology and back-end data analytics to the retail food industry, has also seen its existing market dry up substantially as restaurants have been forced to close. Nomad already had customer experience and COVID-related solutions such as people counting and social distancing products in the market on which it is now focused while its food service customers slowly come back on line.
There has also been lots of positive PR for our existing portfolio companies (links below), including Newsguard’s (Fitz Gate I) fight against Covid-19 misinformation, Paravel (Fitz Gate I) appearing in numerous leading fashion blogs and websites, Quantum Circuits (Fitz Gate I) announcing its partnership with Microsoft, and Predata’s (Fitz Gate I) Director of Analysis appearing on the TDAmeritrade Network. Please see the links below as well as our website for more portfolio company news.
In other news Covid-19 interrupted our venture capital and startup class at the Princeton University Graduate School but not before we were able to teach most of our classes, and our venture capital class for Rice University undergraduates and MBA students ended the semester as a virtual-only class. We will continue to participate in Princeton entrepreneurship events, virtually, including one now being scheduled for reunions weekend. Sadly, due to the pandemic a number of Princeton undergrads lost their summer internships with various startups, but when Princeton reached out to Fitz Gate, we scrambled and worked successfully with the Keller Center to get several of them placed for this summer with Fitz Gate portfolio companies.
And finally, we are grateful that we held the final closing of Fitz Gate II in early March. With Fitz Gate I at $10mm and Fitz Gate II at about $15mm, Fitz Gate Ventures now has approximately $25 million under management to invest in and support outstanding early-stage companies (link here: Fitz Gate in Yahoo Finance). We are grateful to you, our investors and supporters, for backing us and Fitz Gate’s mission.
As always, please feel free to contact us directly if you have any questions or have come across an interesting company from the Princeton ecosystem.
Jim Cohen and Mark Poag
Read Full Post
