Why we won’t apply for PPP
It wasn’t meant for us right now. Is it meant for you?
Take a moment to think about the restaurants, coffee shops, and neighborhood stores that you frequent. Most small businesses without venture capital support have a month or less of cash reserves. By the time the coronavirus dust settles, there’s a good chance that your usual spots won’t exist anymore. Some of those shops might even be owned by family members or friends. My mother, for example, called the other day to let me know that her restaurant has a 50–50 chance of surviving all this.
When the Paycheck Protection Program (PPP) was recently announced, it was intended to preserve jobs by giving lifelines to small businesses that might otherwise shutter. It’s currently becoming a money grab instead, and we’ve decided we won’t be part of it. I don’t expect other startup founders to do the same. Startups are small businesses too, and some founders truly need that lifeline. Decisions like these depend on circumstance, so the best I can do is to share ours with the hope that it helps others reach their own conclusions.
Like most startup founders, I feel a relentless urge to constantly improve the financial position of our company. My instinctive reaction when I first heard that PPP loans could be forgiven: ”Everyone will go after this money, so we should too.” Yet, something just didn’t feel right. It became clear why after I listed our reasons for and against pursuing PPP.
Why we should apply:
- We may increase our runway by 1 month plus change.
- My team and investors might question why I didn’t apply.
Why we shouldn’t apply:
- We have over a year of runway to achieve milestones with our current staff and payroll. If we can’t make that work, then we probably haven’t earned the right to stay in business.
- By taking the PPP loan, we are possibly snuffing out other companies — ones with clearly more need than us and for whom PPP was intended in spirit.
- Everyone has been impacted including us, but we are among those less affected. We are (1) pre-revenue and focused on early product development, (2) an all-remote team working on software technology, and (3) able to continue commercial development and activity online
- It’s not a given that PPP will work out for us anyway. Expected value is probably less than a month of runway.
- We incur significant legal and social risk even if we apply in good faith given the high uncertainty of present guidelines. It’s not “free money.”
Maybe my mind was already made up when I wrote these lists, but they certainly made things clearer for me. The reasons for applying just aren’t good enough to justify the risks we incur as a company and the costs we pass on to the broader business community.
I’ll reiterate here that our decision works for us and by no means will it work for everyone else. Even well-funded startups should seriously consider PPP if COVID-19 truly presents existential risk. For example, I know of some venture-backed companies that saw double-digit 2020 sales projections evaporate to zero. Meanwhile some tech firms in particularly hard hit categories like travel or retail are hurting just as much as bootstrapped small businesses. I just urge that if you can actually make do, then please try to make do, because there are plenty of others that simply can’t right now. As an entrepreneur, I’m all for jostling for market advantages, but that just isn’t what this program is about.
I’m sure many won’t agree with our views, and that’s fine with me. When we’re all facing an invisible enemy, it’s moot to debate who’s right or wrong. We can only stand by our values, and this is just how we chose to express ours. Business leaders have a responsibility to look after their companies to be sure. In times of crisis, we should look after our communities too.
Stay safe out there and be well.
