Watch: Investing in Uncertain Times: Why a Reset in Valuations Could be Liberating for Founders

A decade-long run-up in startup valuations that came to a screeching halt after the novel coronavirus froze much of the worldwide economy last month could have a silver lining for company founders.

"They can build great businesses but don't have to be chasing a growth rate," said Carter Reum, co-founder of M13. "It can be liberating. We've lived in a world the past few years where an artificially high valuation was nothing more than a vanity mark."

Reum spoke in a dot.LA webinar on the state of investing along with Kara Nortman, a partner at L.A.'s largest venture firm, Upfront Ventures.

dot.LA Strategy Session: Investing in Uncertain Timeswww.youtube.com

Both invest heavily in consumer companies and pointed out that a softening of direct-to-consumer companies began last year after well-documented stumbles at WeWork, Caspar, and other brands.

"There was a lot of shame around the resets in valuations and now I think that's gone," Nortman said. "I've seen that be liberating for founders."

Reum said he is excited to be able to invest in businesses he sees long-term potential in, but could not justify the lofty valuations they demanded from investors. He says now VCs and founders alike can focus more on creating sustainable companies.

"Whereas growth-at-all-costs was really cool that last few years, the coolest thing going forward is controlled growth-with-profitability," he said.

Upfront and M13 are still deploying capital but knowing their next fund could be harder to raise they are being more conservative. Nortman says Upfront is preferring to write checks in the $3 to $4 million range rather than the $10 million sums it would deploy before the crisis out of its sixth series-A fund. The firm normally invests in one new company a month, a pace that has continued.

"Things are still moving at Upfront," she said, but also added: "There's still a big question about how to price things and how to invest in people you've never met."

Nortman said even after the virus subsides there will be less travel and perhaps fewer gatherings. Asked whether her firm was still planning to host the Upfront Summit, a splashy annual conference that brings over a thousand investors and founders to L.A. each winter, Nortman said to stay tuned.

"We view the Upfront Summit as a permanent endeavor and an important element to the community," she said.

"Everyone just breathed a sigh of relief," laughed Reum.

Speakers Include:

• Kara Nortman, partner at Upfront Ventures
• Carter Reum, partner and co-founder of M13
• Ben Bergman, senior reporter at dot.LA

Kara Nortman is a partner at Upfront Ventures

Carter Reum is a partner and cofounder of M13.

Ben Bergman is dot.LA's senior reporter, covering venture capital.