We shared this note a few days ago with the founders and CEO’s of Entrée Capital’s portfolio companies.
We are sharing this important information and advice with you. Please take it seriously — we will be in touch over the coming days to discuss specific action plans for your business.
If viewed through the lens of a startup, the Corona Virus (COVID-19) outbreak looks overblown. Chances are you wont get sick, and if you do, chances are good you’ll be fine. Of course you say this because you’re generally under 40 years old.
HOWEVER, unfortunately you don’t live alone and in just your own startup la-la land. If you’re an enterprise software company, you are selling to Fortune 1000 companies that are very much affected by the outbreak and are cutting back non essential spend. If you’re selling to small business, guess what? Over half of small business is started by over 50’s — folks who are most at risk. We can go on…. So, yes, everyone and everything is at risk and will be affected.
In the worst of recent significant market corrections, a trend one can generally use is that the bottom of the cycle is generally approximately two years and markets then run for four-eight years. The economy is due for a significant correction and given activity in startups generally precedes the end of the cycle, one can work on a 18–24 months if one is correcting for the economic cycle AND the virus.
At this point, we believe that there will be a reduction of normal trading activity for three months, after which things will slowly return to a stronger level of activity, and hopefully ramp up by end of the year. Note that many viruses come in 2 waves so you may find another bump in Q3 too. In short, we are hoping for a normal winter season, planning on a cold autumn too, but definitely not an ice age.
There are some practical things one can and should do:
- Conserve cash. We are all fortunate that virtually all of you are funded through the next 12–18 months. Yet, this is not an indication that you can “power though”. It’s an opportunity for you to reevaluate your spend and be frugal.
- Variable and Fixed Cost. Luckily most of you have very little fixed costs (eg long term leases, purchase of equipment). Variable costs are marketing, employees etc. Our recommendation is that you pause hiring on sales and marketing and only hire essential staff (R&D). Bank on a reduction in revenues and your pipeline being stretched out for at least 2 quarters. Additionally, work on the basis that until mid-July, all conferences will be cancelled (e.g. SXSW — Mar, Google Cloud Next — Apr, probably even Google I/O — May).
- If you are still pre-launch and have long term projects, they should not be affected so keep to your research and development plans.
- Implement work from home for at least the next 2–3 months. Even if it applies only to half the employees, it ensures business continuity in the event that some staff do become ill.
- If you are raising funds, don’t optimize. Valuations will reset and investors smell blood. Close now, close fast and compromise of valuation and terms, even doing multiple closings to get it done. Rather be a ‘hero’ than a ‘zero’.
- Make a Business Continuity Plan now!
- Alcohol based cleaning stations. Have wipes, gels etc. everywhere. At our office we’ve created a mandatory cleaning station as soon as you walk into the office. We have gel and wipes in bathrooms, each office, kitchen and meeting rooms. We’ve given a personal gel and wipe kit to all staff.
- use latex gloves/ alcohol wipes etc when opening doors, and handling high touch areas (eg gas pump). And wear a mask when outdoors.
- Cut down travel and having international visitors. It’s less about getting infected on flights. More likely when you return home you can find yourself ‘self quarantined’ for two weeks. That’s probably more stressful! If you must travel, wiper down the seat with alcohol, try not use public toilets (and if you do then use your wipes and gels).
- There are many resources available online with advice. Read up on a responsible source and don’t get sidetracked by fake news, accounts, mass mailings etc. The CDC, NHS, BBC, New York Times have valid advice.
Please be careful, and be safe.
[Updated 7 March]. New York Times has a handy guide : https://www.nytimes.com/article/prepare-for-coronavirus.html