- Crosschq recently raised $5.5 million, and brought in Slack as a new investor, with introductions all taking place over Zoom.
- Many software start-ups continue to grow through the coronavirus pandemic, so investors that don't want to miss out are being forced to put money to work remotely.
- "Having been in the start-up world and having been through this enough times, the mechanics of this process were all different," said Crosschq CEO Mike Fitzsimmons.
At a virtual board meeting in early March, Crosschq CEO Mike Fitzsimmons told directors of his online recruiting company that he was about to make an unexpected call to Slack.
With fears of the coronavirus roiling capital markets and the economy on the verge of shutting down, Fitzsimmons wanted to make sure his early-stage start-up had enough money to ride out a protracted crisis. He'd recently been approached by Jason Spinell, the head of Slack's venture group, about an investment, but Crosschq wasn't in fundraising mode at the time.
The state of the world had shifted dramatically in just a few weeks. So shortly after the Zoom-based board meeting, Fitzsimmons emailed Spinell to see if he was still interested in doing a deal, even though they'd never met in person and wouldn't have the chance to for the foreseeable future.
Four Zoom meetings and two months later, Slack participated in a $5.5 million financing round, alongside GGV and other existing Crosschq investors.
"Having been in the start-up world and having been through this enough times, the mechanics of this process were all different," said Fitzsimmons, who ran start-ups and worked in venture capital before co-founding Crosschq in 2018. "You're accustomed to doing investor presentations and PowerPoints in front of the room and it's intimidating and you get peppered with questions. It's a very different game when you're attacking it this way."
Over three months into shelter-in-place orders, entrepreneurs and venture capitalists are being forced to find comfort in the uncomfortable reality that remote dealmaking is their only option. It's a difficult way to start a relationship, and requires investors to rely less on personal dynamics and more on due diligence, incuding checking in with customers, partners and former colleagues of founders to decide if this is the bet worth making.
Spinell said by email that Fitzsimmons and his team "came highly recommended by a group of trusted mutual investors." He added that Slack has done a "handful of investments" that have come through Zoom connections, but doing so requires "extreme conviction in the product and team."
Slack also tested the product internally for feedback from its people team, Spinell said. The category of sourcing and retaining talent is important and growing.
"What has changed slightly for us due to the pandemic, is that we're even hungrier for investments that fulfill obvious 'future of work' needs that are even more pronounced in our newly remote world," Spinell said.
Fitzsimmons said that doing diligence for a pure remote deal also takes on greater significance for a CEO, who's picking a coach, advisor and confidante, as much as an investor.
"That all has a heightened sense of importance when you don't get the human touch," Fitzsimmons said.
Far from slowing down over the past few months, Crosschq's business has accelerated. Fitzsimmons said business initially dropped off by about 40%, but now is 20% above its pre-Covid levels. Certain customers like ticketing site Eventbrite and jobs review site Glassdoor had layoffs and pulled back on their Crosschq usage, but health care has been strong, as have gig work platforms like freelancing site Upwork, Fitzsimmons said.
The company also partnered with SitterCity, a marketplace for babysitters, to help parents with digital reference checks, and is working with the NBA's Golden State Warriors as the team prepares to start rehiring for the next basketball season. (Golden State guard Klay Thomson is a Crosschq investor.)
Crosschq has 16 employees, including three that have joined since the financing closed, and it has another three open positions.
'Capital is at a premium'
GGV, which led Crosschq's last round in August, wrote the biggest check in this round as well. Glenn Solomon, a partner at GGV and Crosschq board member, said that even though investors are showing an increased willingness to do deals over video, there's a bias towards putting more money to work within the portfolio, where the relationships are already established.
When trying to get into new deals in cloud software, where Crosschq operates, valuations remais high and terms are still competitive, Solomon said. That's because the businesses are still working, the public markets are holding up and venture firms are sitting on billions of dollars in fresh capital.
"When the pandemic first hit, after a week of triaging our existing portfolio, we made a shopping list of companies we wanted to put more money into, existing companies, or companies we always coveted that we thought might need capital or want capital," said Solomon, whose firm raised $1.88 billion for new funds in late 2018. "We've got capital and we know capital is at a premium when uncertainty is in the air."
At Crosschq, Fitzsimmons said his goal was to have enough cash in the bank to last 30 months in case the economy slowed and markets tightened for a prolonged period. In normal times, he would have talked to a number of investors to gauge interest and to try and get favorable terms.
But in March, the only call he made was to Slack, because he needed to move quickly.
"Time mattered in this scenario," Fitzsimmons said. "We weren't as focused on optimizing for valuation and things of that nature. We were motivated by the fact that this was a strategic investor and could be value-add, and we could move quickly."
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Disclosure: Comcast Ventures, the venture arm of Comcast, is an investor in Slack. Comcast owns CNBC parent company NBCUniversal.