It’s not every day that you’re running a $1.5 billion company in the middle of a crushing pandemic, while working from home with four children under the age of four years—including one-month-old newborn twins. Plus there’s that whole figuring out how to ease 760 people into work remotely in three days coupled with finalizing a $125 million funding round with investors—the largest round in 2020 for the state of Utah. That was the life of Podium CEO Eric Rea back in March. 

Just four months earlier, Rea had been approached by existing investors eager to put more money behind the company, which serves as a review and messaging platform for small businesses. Then the pandemic arrived, kneecapping a frothy tech and investment market, causing VCs to pull out of funding rounds. Entire industries would come crashing to a halt.  

Suddenly, Rea was juggling newborns, working from home, handling investor due diligence, and the challenges of COVID-19 lockdown and safety. He was especially anxious about Podium’s future: a good chunk of its 55,000 customers had shut down due to coronavirus and Rea worried investors might pull out of the deal. “It was nerve wracking,” he says.

Despite COVID, Podium continues to expand after landing the $125 million deal, a capital infusion that pushed its funding to a total of $217.6 million since its start in 2014. The pandemic, in fact, became a turning point for its customers, forcing small brick-and-mortar businesses who long relied on foot traffic to undergo a digital transformation overnight. Podium’s software sat in the sweet spot of that transition.

The pandemic paused fundraising, but only for a moment

Last spring, the pandemic killed retail stores, restaurants, museums, and airlines, leaving millions unemployed. Yet consumer spending hit record levels this past summer and other sectors are booming, whether it’s canned meat, RVs, or online business software. The same can be said for local companies, though the lockdown initially prompted a cautious pause in VC investing—halting deals and slowing others—the virus hasn’t stopped Utah entrepreneurs and investors from proceeding as normal. 

Jackson Ostler, CEO of Plenadata, a two-year-old Orem startup that automates accounting says that he was in the midst of raising financing when COVID hit and ongoing funding conversations conducted via Zoom fell through. However by July, Album VC put $1.5 million of seed money behind the four-person startup. “The brakes got pumped for a few weeks,” Ostler says, “but it’s very much back to normal.”

Now investors are more accustomed to writing big checks without spending the same time face-to-face with startups as they did before and finding other ways to come to the same needed conviction. The deal flow, and just as important, the deal-making, is on par again with the pace of 2019 and huge amounts of money are ready to be put into startups. Last year, venture capitalists raised $48 billion and created a string of new funds over $1 billion, according to Silicon Valley Bank. And all of that dry powder needs to be invested this year—COVID or not.

Venture deal flow has surged across the nation, and in Utah, 25 companies landed $522.87 million during the first two quarters of 2020, according to the PitchBook. Nationally, investors poured $69.1 billion into US startups during that time. This comes on the heels of a record decade for venture investments: VC deals more than doubled between 2009 and 2019, with the total value invested hitting $140 billion last year, or five times that of 2009. So far this year, software and internet startups like Podium have, not surprisingly, garnered the vast majority of Utah’s VC dollars.

“This market is not going anywhere. It still has a lot of steam,” says Jason Garcia, an entrepreneur in residence at Salt Lake City-based Indie.vc, an investing arm of O’Reilly AlphaTech Ventures.

This is the best time to pitch an investor

Utah has garnered a solid reputation for SaaS (software as a service) companies, and the state has more big tech companies than ever before—from Adobe to Ancestry.com—which private equity firm Blackstone Group agreed to acquire for $4.7 billion—to Qualtrics, which was acquired by SAP for $8 billion just last year. Those kinds of successes created wealth for founders and senior team members, but have also inspired a wave of experienced operators at these companies to venture out into startups of their own. 

“It’s implanted into the psyche what’s possible,” says Sid Krommenhoek, a partner at Album VC, a firm behind many of the state’s biggest successes over the past decade (including Degreed, Divvy, Filevine, Homie, Podium, MX, Route, and Weave). In the past decade, more investors have flocked to the state and more large family investment firms have set up shop. The pandemic offered more time for those entrepreneurs to noodle on new ideas, Krommenhoek says, and imagine what companies should be created.

Krommenhoek says he’s been busy meeting all summer talking with founders. “There have been companies forming, growing, and fighting nonstop with a constant cadence,” says Krommenhoek. “They’re cranking out code and fighting to get people to listen to them.”

And entrepreneurs now have a captive audience, Krommenhoek says. Before it might have taken three months to get on the phone with him. Now, if you have an idea, and an investor willing to listen, they are probably just like you—bored and holed up at home. 

Yet the new normal has raised the bar for landing that capital. Entrepreneurship, while risky on its own, faces even more uncertainty, whether it’s the economy, the presidential election, or a second wave and new COVID restrictions. Investors want to see businesses with strong fundamentals. Think: runway, revenue, and, yes, even profit. Investors no longer embrace the growth-at-all-costs mantra that often comes with a volatile market, just as they buttoned up following the dot-com crash in 2001 and the 2008 recession.

Later-stage companies tend to fit the criteria for that solid traction, and so far this year, investors put most of their dollars behind more mature companies, including Foldax, a Salt Lake City company developing synthetic heart valves, which landed $20 million; and Vutiliti, a Sandy company that monitors critical utilities, which received $12 million from investors.

Investors also continued to back Utah’s software businesses—including Numetrics, Chargeback, and Everee. Lucid, a 10-year-old Jordan software company that lets users sketch and share professional flowchart diagrams, raised $60 million from investors—money that flowed in April, in the middle of the coronavirus panic. The cash infusion has allowed Lucid to open new offices in Amsterdam and Australia. “People are definitely writing checks,” says Karl Sun, Lucid’s founder and CEO.

Utah investors are also going beyond tech and software deals—and venturing into some surprising areas, given the uncertainty around COVID. Salt Lake City-based Mercato Partners created Savory, a new $90 million fund that has earmarked funds specifically for restaurants. And despite the fact that coronavirus has decimated much of the restaurant industry, shutting down restaurants or limiting seating, Savory is aggressively seeking to acquire and invest in restaurant groups.

Surprisingly, the pandemic forced restaurants to get smarter about what menu items sell and to think about how they can serve customers in non-traditional ways, says fund manager Andrew K. Smith. That’s made some restaurants 70 percent more profitable. Already, Savory will have invested $23 million this year and has been in talks with 300 restaurants about potential deals.

“No one has a crystal ball. Everyone is guessing, but we believe the industry is strong,” Smith says. “There is pent-up demand to get out of the house and feel normal, and people have got to eat.”

But entrepreneurs might be better off bootstrapping right now

Venture capital, however, isn’t the end-all-be-all for founders. As the cost of starting a business drops, bootstrapping becomes a far more viable and an attractive path. Utah’s entrepreneurs tend to be older, in their 30s and 40s, and they may bring with them more financial wherewithal to fund a company’s beginnings. “In Utah, we have a scrappier group of people,” says Garcia.

And they have local inspiration. Before Provo-based Qualtrics was acquired by SAP, the software company’s founders bootstrapped the growth until 2012, when it eventually accepted investor money. “You really have to kind of be blunt, eat what you kill,” CEO and cofounder Ryan Smith explained onstage at TechCrunch Disrupt SF 2015. 

That strategy paid off:  Smith and his cofounders—father Scott and brother Jared—walked away billionaires after the acquisition. Other young companies are also turning away from VC investments and still achieving significant growth. Jane.com, a Lehi-based website for fashion boutiques and Job Nimbus, a construction software firm, has grown without investors, as has St. George-based Zonos, an e-commerce software maker.

To assist companies in finding alternative capital without the fast growth demands of most VCs, Salt Lake City VC, Bryce Roberts started something called Indie.vc within O’Reilly AlphaTech Ventures. The funding model is unique in that the firm makes modest investments—between $100,000 and $1 million—with simple term sheets.

Unlike most VC deals, Indie.vc startups aren’t expected to grow at all costs, but rather turn a profit. Founders don’t give away controlling stakes and no VCs are added to the boards. Founders can buy back the stakes (ranging between 10 percent and 15 percent) by hitting certain revenue targets, using convertible stock. Since 2015, OATV has backed 34 companies through Indie.vc and seen returns of between 100 percent and 300 percent per year.

Due to increased demand from startups, Indie.vc started a new software product called INTRO that matches companies up with potential funding options for their businesses. When a company decides its ready, then Indie.vc will share its anonymized data with the partners it chooses. If the partners want to talk more, Indie.vc will make a personal introduction. 

In just three weeks 1,000 businesses created accounts and 90 percent of those with more than $10,000 in monthly revenue found funding options after completing their profile, says Garcia, who is managing INTRO. By emphasizing numbers over narrative, the software eliminates that bias often found in investor pitch decks.

 “It takes the guesswork out of what your options are and who to talk to,” Garcia says. “Founders are looking for something different that can fund growth but that can decrease the amount of equity investment necessary or avoid VC altogether.”