Will you be the winner, the survivor or the casualty?

Louisa Mesnard
May 27 · 6 min read

This article is based on a series of talks and interviews with Xavier Lazarus, managing partner at Elaia, which were given during the lockdown period.

May 2020. The number of daily Covid-19 deaths seems to be flattening. Most countries have gone out of lockdown. Sometimes we even want to believe that it is all behind us. From a sanitary crisis perspective, perhaps; at least hope is coming back. But that being said, full recovery of the global economy is another matter.

At Elaia we have already gone through a couple of global major crisis. Crisis are part of the normal life of the VC industry. In the VC world, where funds last 10 to12 years, you know a crisis will happen more or less every vintage, if not two. And we know that after the initial shock, the world economy needs time to heal.

Let’s dig into the challenges and opportunities these unusual times offer. Disclaimer: each crisis is different but we strongly believe some previous patterns will also apply to this one and some knowledge can be shared.

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Winners, survivors & casualties

Darwin’s theory around the “survival of the fittest” takes an entire new meaning in times of crisis. Only a limited amount of companies will survive and you want to be part of them.

Entrepreneurs, the economic crisis is just starting and unfortunately, it won’t end with the sanitary one; it might last and it won’t be fair. Three categories of startups will emerge from it: the winners, whose business directly benefits from this special context ; the survivors who will successfully adapt to adverse conditions ; and the casualties.

The winners.
If you are amongst those who benefit from the acceleration of the technologizing, and especially the digitalizing of the world, you should take advantage of it. The world is going in that direction full steam ahead.

As Satya Nadella from Microsoft says: “2 years of digital transformation in 2 months”. Organizations have been forced to change, Covid-19 has democratized technology. Winners operate in sectors that have exploded such as ecommerce, health tech, fintech, cloud infrastructure, remote working tools, e-entertainment, etc. Here is a great article about the impact of Covid-19 for the winners “No going back — how fear of Covid-19 democratized technology” by Philippe Corrot, cofounder of Mirakl.

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The survivors. Turn on the survival mode.

And then there are thoses startups operating in sectors that are being slowed down by the crisis (let’s be realistic: it concerns most economic sectors and you might be concerned), or even obliterated (Horeca, IRL entertainment, travel, etc). Yes, crisis are unfair.

Xavier tends to compare weathering a crisis to racing the “24 heures du Mans”. Most will focus on how to end first on the finish line but if you want to actually be on this finish line, you need first to survive the first hour: on top of outstanding driving skills and cold blood, you need also both petrol (cash) and a good engine (your team, product & tech) to pass through the packed start.

In the start-up race, you realize that after that first hour, many have given up, crashed or ran out of gas. So just be on the right side when it ends. By the way, our game is even tougher than racing Le Mans: refueling regularly is compulsory in both cases but there is not enough fuel for all the racers in our case!

Be a “must have” for your clients

When a crisis comes, people and companies go back to the essential stuff and focus on what is a “must have”. They’ll get rid or postpone the “nice to have”. For example, cybersecurity is compulsory but productivity tools aren’t that much.

First, you need to become, as a partner, a “must have” in your existing clients minds: take care of them and help them through the crisis. Since acquiring new clients might be hard, focus on the existing ones not churning. Being a “must have” is a mindset and a mission throughout the Company.

In the B2B sector, to be a “must have”, you need to be helping your client make more revenue or save a lot of money. Worse, bringing immediate value to your clients isn’t enough anymore: they need to believe that there is no other way, simpler or less costly, to get this value, or at least most of it. The best way to achieve this is to make sure that turning the “off button” of your product is unthinkable, or at least extremely painful. Criteo started to expand in 2008, when every company was slashing their marketing budgets. But, Criteo strived and hardly lost any customer in their launch period, because it brought them extra revenues at a significant scale and these extra revenues disappeared anytime the customer tried to avoid to use Criteo’s retargeting capabilities.

Small vs. big

The smaller the animal, the better it survives. Early-stage startups are flexible and have low burn rates; they are used to the “survival mode”. Think of Slack that managed to raise their seed round in 2009 and strive in the aftermath of the subprime crisis.

On the other hand, medium and large companies will have to adapt their cash needs to have enough runway to survive. Difficult decisions will have to be carried out. We have learnt over the years that it is easier for the founders to hammer strongly once rather than several times over a long period of time. Think of a one-time layoff plan: it’s profoundly painful but those who stay are motivated, while if there is a successions of layoff plans, everybody gets constantly worried.

Prepare for the bounce back

Reducing your size to the minimal one seems the best advice, but when this crisis ends, if you are too small, you’ll lose the capacity to bounce back. You have to downsize while keeping the fundamental muscles to get ready for what is coming. Post crisis rebound is the ultimate pivot, you want to be ready for it.

Cut to the bare minimum while keeping in mind you will need to bounce back.

Crisis can be an opportunity

1/ For those who survive

The period just before some kind of new “normal”’ is the best period to hire, raise funds, convince clients etc. Even if it isn’t easy, there is less noise in the market with less people to compete for capital and customer attention. This is when the best deals are made whether an investor, a tech provider, a client, a talent looking to be hired etc.

Crisis survivors look immortal: they have become warriors and are more efficient than ever in terms of product, organization, cash efficiency and team fighting spirit!

2/ For those who want to create

There has never been a better time to create a company than in a crisis. All the wannabe entrepreneurs, who imagine that founding a company and pitching it all day long is a great lifestyle, have disappeared, leaving only the most motivated who are tackling real problems with “must have” solutions. Our best investments were made when entrepreneurs were bouncing back from the 2000 or the 2008 crisis. And Marc Andreessen confirms this with his fascinating article “It’s time to build”.

Entrepreneurs, total respect to you!

At Elaia, we believe that you, the entrepreneurs, are the brave ones and even more so in crisis times. Risk and failure are part of your “business as usual” and what matters right now is that you don’t get killed in trying to survive and succeed. It is going to be hard, you might lose sleep and probably gain or lose a few unnecessary pounds, depending on your metabolism, but as could have sung Sinatra, “if you can make it in Covid time, you can make it anytime”.

Total respect to any entrepreneur who is sailing in the storm and a huge admiration to both the winners and the survivors; we will always stay by your side during these challenging times.

Special thanks to Marc, Samantha & Xavier for their precious feedback!


• Backing tech disrupters •

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