Unlike the stock market, there is no daily ticker of venture-backed private companies. If you’re an entrepreneur building a startup or curious about how this climate has affected the VC point of view, you are not alone.

We are in a period of extreme uncertainty. We don’t know when things will get back to normal in the economy or in terms of public health. Is there even a “going back”? Will the new normal look completely different?

While I am not personally a venture capital investor, I have a bit of insight into how they think via direct recent conversations. Of course not everyone is the same. There are many opinions about what these changes mean. I have included my thoughts and analysis as well as first hand comments I’ve heard directly from folks in the business.

1. Think Long Term, Focus on Home Runs

Modern VC has a very specific way of thinking about investment strategy. They are looking for massive returns from a small number of investments. This means every investment must have the potential to pay back the entire fund. Hunting for big market opportunities is different than looking at quarterly earnings per share.

Rather than thinking about the time it will take to pay back the investment (Investment Rate of Return or IRR), the focus is on finding large and growing Total Addressable Markets (TAM). Patience and uncertainty is baked into the VC equation.

2. Great Companies Endure Hardship

I personally think there is a survivorship bias inherent in looking backwards at companies founded during a recession. Overcoming difficult times creates lean corporate cultures focused on essentials. Executing flawlessly without the fluff.

VC’s are watching closely to see how entrepreneurs are allocating resources, changing their forecasts, eliminating waste, and overcoming hurdles.

Hard times filter out bloated, disorganized, and inefficient teams.

This is a key part of finding the rare combination of a big TAM, a novel solution, and fantastic organization at an early stage.

3. Valuations Were Sky-High Anyway

Private valuations for some companies and categories were considered to be extremely high. This is evidenced by the hand-off from private to public valuations in the less-than-successful IPOs last year. This creates an opportunity for VC’s to recalibrate entrepreneurs expectations around revenue multiples and comps. That said, great companies with multiple options for investment (or delaying investment) will still be able to command great terms.

The dreaded “down round” should not have the normal stigma if it comes after a market-wide recalibration.

This natural reset of pricing based on market conditions is good for the overall ecosystem. It poses a challenge for companies who raised funds at the top of the market for their next round of funding.

4. Patience is Vital, Learn Everything About the Change

Everything in business has slowed down because people are distracted. They are stuck at home, handling medical issues, family members, kids. This is not the ideal environment for investment. I spoke to one VC who told me they made an investment without ever meeting the founders, which is not normal. Everyone adapting to this reality will move with less urgency than before.

VC’s operate on investment thesis of emerging trends or changes in the long run to guide where they put their dollars.

Trying to separate temporary shifts from long term trends is difficult analysis, especially in the midst of a crisis.

This is why you won’t necessarily see a ton of work-from-home startups with fresh VC funding until things play out a bit more. On the other hand, some of the established or later stage video streaming, social media, gaming, and food delivery businesses are experiencing a boom. It is still an open question if this will continue sustainably.

5. Build On Previous Investment Rounds

A practical matter right now is deploying capital with slower down deal flow. VC’s are anticipating some companies may need more runway, so in some cases adding to already closed investment rounds at previous prices. This is an easy way to ensure solid cash positions for portfolio companies to weather uncertainty revised targets a bit better.

Conclusion

No one has a crystal ball, and not every VC is thinking the same way. While the stock market has gone through ups and downs, VC will continue to be deployed and new businesses will form and grow. A steady hand and level head are key to weathering any storm.

The game hasn’t fundamentally changed, at least not yet. If you’re an entrepreneur building a startup, stay focused on creating value, a solid team, and solving a big problem. Check your expectations at a reasonable level and get creative about funding.