Everyone is tracking the news cycle around the coronavirus and it’s far-ranging impact. While it is difficult to interpret all the data-points, there is no doubt that we have entered a very dynamic and difficult environment. We wanted to take an opportunity to remind founders that we are here to help as best we can, and to generate some thoughtful conversations that might help you plan for an uncertain few months.
Cash and Cash Flow: These moments are good reminders to keep a check on cash levels and cash flow, especially expenses that could be optional. Now is also not a great time to make huge changes to your company, because when things do return to normal drastic actions may be hard to recover from. Be rational about spend and take time to create a budget that gives you a realistic view of cash runway in various downside scenarios that assume a potential weak Q2, Q2 + Q3 and Q2-Q4. Assume things will be challenging in 2020, but it is definitely not a time to terminate half your company, unless you were planning on doing so long before you ever heard of coronavirus.
Sales: Sales cycles will become longer in Q2 and likely well beyond that, and unfortunately more unpredictable in the near term. Deals will get drawn out, and potentially, your sponsors at potential customers may be harder to contact. Alternatively, if your potential customers are working remotely, they may be easier to communicate with as the usual office distractions might be less. Both of these conditions may be true at the same time, so it’s important to have patience with people you’re in discussions with, especially if they need to collaborate with other people in their organization to get your deal done.
Also, from our point of view, it’s not a time to be opportunistic and try to “sell into” the coronavirus hype. Any short term gain you think you may achieve, could be viewed as wildly negative when things return to normal.
Existing Customers: Existing customers are the core of your business today and the lowest cost driver of revenue growth tomorrow. Your customers are experiencing all the same uncertainty as you, so make sure you are leaning in with extra support and a common sense approach to building value. This is a good opportunity to touch base with your customers, and find ways to help - and this is doubly true if your product can play a role that directly impacts your customer’s ability to address today’s uncertainty -- we see this happening with our healthcare software portfolio companies.
Hiring and Recruiting: We expect you’ll face new challenges in recruiting and hiring. Given that sales and therefore cash flow/receivables could become cramped, it’s prudent to focus only on critical hires. Hires that are imperative to customer retention or strategic product features are always key, but consider putting off hire for non essential positions in secondary functions until things stabilize.
Employees: Now is the time for company leadership to be visible, decisive and consistent. If remote work is an option for your team, make sure you’re all prepared for it. Keep communication open with all employees thru Slack, Zoom Chime or whatever your team uses -- and understand that there will be a period of adjustment as you work to find a new rhythm around your extended sales cycles and work environment. Uncertainty and reactionary decision making within leadership can be dangerous both internally and externally.
Financing: Investors can be fickle. During events like this, some investors continue to operate as they have, deploying capital, taking meetings, and generally running their businesses as usual. Others may react negatively, slowing or stopping investment deals, and they may pull back into a wait-and-see mode. There are hundreds of active early stage venture investors in the market, and we expect they will all behave somewhat differently. It’s not a referendum on you or your business, even if it feels that way.
Also: Just because the stock market has a bad day, that doesn’t mean that venture investing will stop. Venture capital has minimal direct exposure to global stock markets, and venture investing generally continues at some pace irrespective of how stock markets trade. In 2019 $46 billion was raised by US based venture capital firms across 259 new funds -- the 2nd largest year for US venture fund fundraising in history behind the $58 billion raised in 2018. This means that there is a significant amount of ‘dry powder’ in the market for investing in start-ups, which was not necessarily the case in the 2001 and 2008 downturns.
Pitching: This probably doesn’t need saying, but everyone you’ll pitch to likely has the same sensitivities to the situation that you do, like uncertainty and lack of clarity. Some general advice is don’t make light of the situation, and stay focused on your business and why they should take you seriously and be excited about what you’re doing. It is likely that in-person pitch meetings may be moved to video, so make sure your decks are in shape to be shared over video, and your presentation style adapts to not being able to see people the way you might in a conference room.
It’s perfectly acceptable to discuss slowing pipeline and deal flow, in fact, it’s probably to be expected. Don’t pretend that it’s not happening if it actually is. Most likely, every single company that investors are hearing from have the same challenges. Be clear, up front, and resolute.
Getting term sheets and proposals: Most investor groups are also small businesses, so they have the same operational challenges we all have during this uncertainty. It might take longer to work through things like reference calls, having the investor groups focus on your terms or financing proposals, and general communication. It’s also no time to play hardball with valuations, regardless of what you think your company is worth. Most valuations are what the investor thinks will work for their portfolio and their investors, so if you are successful at getting terms proposed, be thoughtful about the general circumstances in the environment at the moment. It’s likely that a deal that might have been easy to do a year ago, may be somewhat harder to do while the coronavirus continues to own the headlines.
If you’re in the middle of a financing round, it can be super stressful, as deals do fall apart or change in times of uncertainty. If documents are in legal review, continue to push them through. Make sure your lawyers are working for you, and moving as quickly as possible. And remember, that momentum is super important to maintain during financing events, likely even more so in the current environment.
What we don’t know: We don’t know anything different than anyone else. We don’t know how long the coronavirus will stick around, or how deeply its presence will be felt within our startup ecosystem. BUT we do know that these episodes all eventually pass, and life returns to some version of normal. When it does, make sure your business is healthy and ready to tackle the next challenge.
If you have specific concerns or questions – or even perhaps opportunities – that are arising from this, reach out to your mentors and investors. We find that often, these uncertain environments are best navigated with trusted advisors.
Above all – take care of yourselves and your families. We won’t be giving any health advice here, but please stay tuned into the facts. Wash your hands and stay healthy!
-The NVP Team