Cathay Innovation suggestions and tactical advices to deal with the COVID-19 period

Sharing the letter we sent to our portfolio companies to help them dealing with the Covid19 and anticipating post-Covid19 periods. We believe that we are in a longer period than expected of weak activities to manage, but that here lies also a massive opportunity of acceleration for the ones who really want to be useful

Dear Entrepreneur Friend, Dear Cathay Family Member

As the world continues to be shaken by the COVID-19 pandemic, we hope that you, your family and your colleagues are all safe and in good health. If there’s anything that we can do to support you during this time, please don’t hesitate to reach out your usual Cathay Innovation contacts !

The Cathay team is on your side in good and bad times — you not only have the whole team, but the entire Cathay ecosystem at your disposal. We’ve outlined some specific and practical areas where we can provide help — from financial guidance to industry and market insights to day-to-day operations and facilitating helpful connections. In addition, we’d also like to share some more tactical suggestions and business considerations for the coming months which you can find at the end of this email.

As global investors, we are seeing various quarantines and isolation requirements beginning to take place throughout Western Europe, North America and other parts of the world. But we have also seen first-hand the beginning of the epidemic in China and how entrepreneurs and their communities have managed the crisis.

From our observations, we believe that central banks have so far injected enough liquidity into the economy to avoid a 2008 scenario. This week in China, activities began to resume, following a pause period that lasted 45 days. However, because of the country-wide pause in China, it will likely take months for business to return to normal. We believe you should prepare accordingly with a longer time horizon in mind than initially expected.

In China, companies and people have lived a fully digital life for practically two months — which will likely be the same case for many countries. This will result in a post-crisis acceleration of the digitalization of the economy. Meaning, if you take the right steps now, there is ample opportunity to accelerate your reach after the crisis subsides. So, not only should you be taking all the necessary actions to secure the company cash for a period of 18 to 24 months, but also be thinking about how to exit this period and rebound strongly.

As you know, the Cathay ecosystem is large, global and diversified. We would welcome the opportunity to connect with you or your team to discuss the several ways we can provide support.

This includes:

1. Financial & Business Advice: Feel free to share your financial plans so we can better understand your current business situation and provide best practices from our experience and observations. We would also be happy to provide relevant contacts and make connections to those we know who can help advise.
2. Network & Connect: We are creating working groups on various topics, including geographic focus areas (e.g. how to practically activate stimulus packages), between all the entrepreneurs of our portfolio so you are more connected with your peers.
3. Market & Industry Insights: We are in constant discussions with our corporate investors and ecosystem members. Please remember that these are valuable sources for insights on the current status and future projections of various industries and markets, which can potentially help with specific business needs or make additional connections.

We believe that if we take a strong stance and implement the right immediate measures, while also thinking about how to accelerate even further once this period ends, your business opportunities will be even greater than before. However, in the interim, we’ll face difficult times and need to adapt to an evolved vision for the world that follows. Don’t hesitate to reach out with your Cathay Innovation main contacts, to provide you help and friendship !

Denis Barrier

Cathay Innovation

Recommendations & Considerations

1. Support and secure your employees by helping them set-up to work remotely as offices will likely be closed for the next two months.
2. Assess what could be a revised business plan, in terms of revenue and costs. You should particularly be making necessary changes to preserve cash in the following months, as this will be the parameter that ensures the business can get through this next period or not. Be sure to evaluate all spending, including technology and marketing costs, to see what is necessary and think about extending the lifetime of the company as your main priority.
3. Overcommunicate with the team since everyone is remote and make sure the team is motivated and culture is intact. Have more standing 1:1s. If you had to make cuts, highlight the opportunities to take on more responsibility and consider granting more stock in the absence of cash bonuses or salary increases so that they are committed to the same long-term success.
4. If you are in a fundraising period and you received a term sheet, close the round as soon as possible without arguing on non-essential details. We believe that there is still money available in the coming weeks with funds that are already engaged with you, but that money will dry-up in coming months. As there is so much uncertainty about future capital during this undefined period of time, you should keep control of your destiny by managing your cash for the longer term, regardless of valuation. In addition, if you recently closed a round and there were additional investors interested in joining, it might make sense to re-open if it is easy for them to get to the finish line.
5. It’s likely that every country will propose some stimulus packages, resulting in assistance for small businesses and startups. We recommend that you pay attention to what is offered as it could make a substantial difference in the outcome. For instance, in Europe, the measures of “chomage partiel” and the reduction of social security contributions for businesses can preserve EBITDA and cash even with a reduction of 25% of revenue in some cases.
6. If your solution or product can help the fight against COVID-19, or help communities, you should offer it promptly without looking for immediate financial rewards. We are living in a time when everybody helps in a time of need. Opportunity will follow.
7. We’ve seen some companies who have simplified certain aspects of their products during the confinement period, which has dramatically increased customer adoption. You have likely already been very busy talking with your team members about remote work, assessing your customers intentions, preserving cash, but you must also think about your product. There are opportunities!
8. As the world navigates this crisis together, it’s highly probable that society will have an even stronger desire to support the companies who are sustainable, promote the wellbeing of people and have an overall positive impact. So be even more committed than ever and expect that providing genuinely useful and ethical value for people will be a major driver of economic success.