The Founder’s Survival Guide in the Time of COVID-19

An open letter to founders gearing up for the new economy

Pear wanted to share the e-mail we sent to our portfolio companies this past week with the wider founder community. We hope it is helpful to all of you and that you are staying healthy.

Dear Founders,

We hope all of you and your loved ones are healthy and stay healthy. Although there is a lot of information (and some mis-information) on the COVID-19 outbreak, we wanted to share some resources and our economic outlook and how you should plan for it.

Elad Gil who is a serial entrepreneur and investor is blogging extensively about COVID-19 here. We think it is one of the best sources of information. In his blog you can find actual data of where every country is with the spread of the virus, resources on how to protect employees and advice for dealing with a downturn. We recommend you read Elad’s blog.

No one can predict with certainty what will happen but experts believe “it will get worse.” It all depends on how quickly we react. You can watch this video for a simple explanation on the math behind the spread (simple enough to watch with your kids). The New York Times has just put out an interactive tool to visualize different scenarios.

What does this all mean for a company?

We are in a new economic environment. Operating in this environment is different than business-as-usual though. This guide lays out some principles that will help you set up your business to weather the coming storm and emerge from it stronger than ever.

1. Keeping employees safe and limiting the spread

  • Although most companies have already implemented Work From Home (WFH) policies, it is very likely that WFH will become mandatory for a period of 4–12 weeks. Before mandatory closures, you will likely be required to screen visitors and employees which may in itself prove too complicated. Ask yourself twice if you need to take meetings in person. We are highly recommending to take proactive measures rather than reactive measures. Some more general information on how to limit the spread can be found here.The more we limit live interactions the smaller the chance of spread and the faster things will get back to normal.
  • If you have not done so yet, it is a good idea to issue a company policy on this. If you need help issuing a company policy, please take a look at sample policies by tech companies: Coinbase, Stripe, Twitter, and Google. Elad’s blog also has some common-sense advice for employers and employees.

You will likely need to come up to speed in best remote work practices. Here are some useful links:

2. Managing the downturn - a financial outlook

Most of you have read by now the Sequoia Capital blog on “Corona Virus: The Black Swan of 2020.” Some of you may remember their blog “RIP the good times” from our last downturn in 2008. If you have not read these two documents, please do so!

The new reality: Money into the company will drop

  • Sales projections will likely drop. For some of you, in industries like travel or cross-border commerce, it is already clear. For others, it may take a few months to see the impact unless you are in a business that supports WFH, primary needs for consumers, we are expecting that your sales forecast will slow down.
  • Fundraising will be much harder. For the last 11 years, we have had a bull market and it has been really easy to raise money. This has changed and we don’t know if it will last 6 months, 12 months, 18 months or longer. So here is the question you should ask yourself: “How will I survive if I cannot raise money in the next 12–18 months?”. Please know this is a real scenario. Last year, we were at record highs in venture capital. In the 2001 downturn venture investments dropped by 80% from 2000 to 2002. In the 2008 downturn, they dropped by almost 30% from 2008 to 2009 (but volume was already much lower than in 2000!). You can see it in the picture below. We do not know the size of the impact today but we do know there will be a negative impact to volume of fundraising.
  • Opportunities for M&A will also dwindle. This downturn will affect all of us, big and small. As a result, traditional acquirers will be less open to acquisitions and if they do they will look more carefully at the “cost” you will represent to the acquirer. Of course, if you are profitable, you will be in better shape. Good companies will always get bought and smart acquirers will always be there. However, founders need to still build strong relationships with acquirers and be realistic about valuation expectations. Below is a graph to show how dollars of M&A activity changes with market.

A new plan: how to extend your runway

Whether you have 18 months of cash in the bank or 6 months of cash, we suggest that you take another look at your current financial plan and evaluate carefully whether you have the runway you think you do. We have lived the last two major downturns and we have witnessed first hand that only companies with cash survive.

Here are some concrete steps you should take:

  • Headcount. This is the time to ask yourself “Can I do what I need to do with less?” Even if you have the budget, only hire the people you absolutely need. If you’re a fast growing company that’s hiring ahead of the curve to drive growth, reconsider your hiring plan. If you are an early stage company, and have a small burn, keep it low, only hiring the bare minimum. If your runway is very tight (less than 12 months), you may need to do cut headcount. It may not be enough to hire more slowly in this case. Cutting headcount is something no one likes to do and some founders may be very reluctant to do it, but it is important that you evaluate this now and not wait.
  • Compensation. You may need to make some compensation adjustments overall: base and bonus. For sales teams, you want to move to a more commission based compensation. The math is simple, a 25% cut in salaries will get you an extra quarter.
  • Marketing expenses. You need to re-evaluate your marketing plan. It is important to consider not just your LTV/CAC but also your payback time. For those of you with longer payback times (>6 months) the impact is higher as you tend to depend on outside capital. Some of you that have inclinations to spend on PR this is not the time — for the next few weeks/months the news feed is about something else. We believe this is a good time to be creative in marketing — is there an alternative to spending tens of thousands of dollars with a creative agency?
  • Office related expenses and capital expenses. This is the time to be frugal and not the time to tie cash in non-essential expenses: larger offices, new furniture, new equipment, etc.
  • Managing your cash flow. This is the time to ask for customer pre-payment and give a discount, or other ways to front load cash flow. If that does not work, you can look for contract financing options (through banks or companies like
  • Act quickly. Time is of the essence. Do not wait to make changes to your plan. NOW is the time.
  • Act decisively. Do not be light on your cuts, be aggressive.

This picture from the Sequoia presentation puts these last two points in a clear light and this quote summarizes it: “Nobody ever regrets making fast and decisive adjustments to changing circumstances.”

Once you have made a plan, take a breath and think again — have I been as decisive and aggressive as I can be?

Finally, if you do need to fundraise, we suggest you adjust your expectations and get started quickly as it will take longer. Do not optimize for valuation, optimize for enough cash to survive.

A new Northstar: opportunity to build a strong business

If (and only if) you have enough cash and you spend it judiciously, you have the opportunity to focus on building a strong business rather than focusing on things that don’t matter. Some iconic companies were founded or built early in the last downturn of 2008–2009, marquee companies like Airbnb, Uber, Slack and many others. Some existing companies take this as an opportunity to grow, such as Apple who reinvented itself in the recession of 2001.

  • Some operational things will get easier. Some things like office space and recruiting will get easier as there won’t be as much demand. In 2001, commercial leases went down in price significantly (in some cases 5x cheaper!) and were more readily available.
  • A better-run company. We have seen that when our companies are forced to do more with less, they become efficient, creative and focused. Founders are incredibly resourceful.
  • Be creative. Does the new economic environment create opportunities for you? Some of our companies are positioning their product as a product that can help remote work, remote education, telemedicine, online support, etc.
  • Focus, focus. Business that have strong unit economics, shorter payback times, organic growth, a clear moat will come out really strong.

We will be reaching out to each individual company (if we have not done so yet) and discuss with each of you plans moving ahead. We understand some of you may have just raised and some may need to raise. No matter your situation, Pear is here to help you. Please reach out to us with any questions/concerns.

Stay healthy and safe,

The Pear Team

0 to 1 venture capital. We partner with entrepreneurs from day zero to build category defining companies. Founded by @pejmannozad and @MarHershenson. |

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