What to look for now
This is what HATCH recommended their own portfolio three weeks ago at the start of the crisis. Written by Co-Founder and Managing Partner Georg Baunach
Dear founders and CEOs,
I hope all of you and your families are well. Though the current incoming crisis is likely going to impact all of us, I’m fascinated by the challenges and opportunities that will arise for those who make smart decisions. I thought I might share my thoughts and some advice with you in case some of it is helpful. Please keep in mind that this is just my opinion.
Seafood demand and markets
It might be worth to start thinking about how the seafood markets might change in the coming months. This could be helpful to predict how much money your customers and also partners will have to spend on ‘you’. In our industry it’s theoretically fairly easy: The consumer buys seafood and if the consumer buys more at a higher prices that’s usually good for the entire industry and vice versa. In my opinion, seafood is a generally a premium food item compared to either types of food but still food — meaning that people will continue eating in a crisis.
I’ve attached a bunch of charts that give some insights into how aquaculture production and prices changed during the 2008 financial crisis. It seems that the overall hit was not too bad and that cheaper seafood items (Tilapia, Pangasius) did better than the higher value species (shrimp and salmon — both which also had some severe disease issues around that time with ISA and later EMS). One thing that might though be very different in comparison to 2008, at least for the Western markets, is where people eat seafood. Most consumer are not very good at preparing it at home and given the current restaurant and canteen closures the impact of this crisis might be relatively higher. Consumer likely will eat more self-prepared meals but might switch their diets to easier to cook proteins such as chicken.
Here are a few links to read further:
- Our mentor Willem on the current shrimp market in Europe: https://www.linkedin.com/pulse/restaurants-throughout-europe-close-what-happen-willem-van-der-pijl/?published=t
- Kontalli on the current salmon market https://www.undercurrentnews.com/2020/03/16/coronavirus-could-see-lesser-hit-markets-required-to-absorb-22-more-salmon/
- Our mentor Gorjan/Rabobank in 2009 on the effect of the financial crisis: https://www.seafoodsource.com/news/supply-trade/europeans-stick-to-seafood-despite-economy
Customers
Think, read and talk about how your customers are likely going to be impacted by the crisis: How strongly will they be impacted by the supply chain shocks (see below), travel bans, remote working etc? Where do they stand in the supply chain and how diversified are their revenue streams to cover potential losses in certain markets? Do they have financial reserves? Will they need to safe costs? How important is your segment to them? Do they have other businesses/units that will require their full attention? And as always: Ask them.
This might come a bit too early but I think it’s worth thinking about how you can change your approach and offering to keep them/keep growing. Though maybe a bit early, here a few things to consider:
- Invest in remote demo material
- Get a CRM tool
- Be more proactive to keep existing customer relationships healthy
- Empaszie the cost-saving aspect of your offering
- Switch to a performance-based pricing especially for offerings that add cost for your customer and don’t immediately save them money or increase their revenue (e.g. your software is more convenient)
- Lower price where needed but avoid pausing orders if possible
- Find co-financing partners for your product/services
Funding
In a crisis usually those with the deepest pockets come out strongest because they can act while others react. Similarly to thinking about how much liquidity your customers have, you should do the same for partners and especially future investors: Usually a crisis is not good for the availability of VC money. Investors are less likely to invest into VC funds because it’s seen as high risk investment. This in turn will make the VC likely more selective in where and how much of their current money they deploy. And it will make it less likely that they are going to raise their next VC fund in the future to an extent that some VC might actually not have money right now if they were in the midst of their own fundraising. We know that quite a number of AgTech VCs out there have not yet closed their funds (luckily Hatch just did). If the fund is not closed the fund investors can often redraw their committed capital. If you are fundraising right now, a few thoughts/tips:
- Understand the financially situation or your potential investors: Is their fund closed? How much more money do they have left to deploy? Until when? Do they have the money in their account?
- Have a corona strategy ready if investors ask or even think about how you can position an investment in you as a good thing in the current climate
- Stock-listed strategic investors and angel investors might be more difficult right now
- Large companies might have bigger reserves but also more iris policies/longer decision making; if you need their money make sure you understand their decision making during crisis mode
- Family-owned strategics could be your best bet but might want more equity
- Protect yourself against investors who want their money back earlier than originally communicated
Even if you are not fundraising right now but you took on capital previously, I think it is worth reaching out to your existing investors and involving them in your planing.
Generally it is probably worth thinking about how you can generate alternative cash flow sources to compensate for hard-to-get funding. Ideally those should be as close as possible to your current, target future customers. This will allow you to have some learnings from it that you can transfer. Looking into new revenue streams is obviously a risky step since it will certainly take away focus and can confuse customers, employees, partners etc.
Cost management
Not very original thoughts but most likely relevant. Especially if you try to prolong the period till your next fundraising:
- Think twice about making new investments and liabilities; use tools like cost-benefit analysis, ROI etc
- Monitor your burn rate closely and keep your books up to date to avoid negative surprises
- Think about how to increase productivity and efficiency with what you already have
- Clear communications with employees in case you are considering pay-cuts or laying them off in the future
Supply chain shocks
Lockdowns in large parts of the world are likely going to cause supply chain disruptions/shocks. If you rely on supplies and especially if you need many supplies to offer your service/build your product, monitor this carefully and plan for supply delays and increasing cost of goods.
Getting it right
On a more positive note, I think there are also a few opportunities arising from this crisis:
- Farmers will be more understanding of disease prevention and the biosecurity concept. Those of you who help farmers manage their farms might be able to benefit from this
- More and better remote working and communication tools will arise. Maybe you can see what works in other parts of human life and think if you could transfer that to your industry/customers
- Better diagnostic technologies will be available at an affordable price including more remote diagnostic tools
In summary, be smart about picking your customers, partners and investors as well as the decision you make. This will allow you to come out stronger than your competitors who are likely facing the same challenges right now!
The 2020 HATCH accelerator program is taking applications now! Check out the details.
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