Navigating the Storm
Running your startup during the recession
We recently ran a webinar for the founder community talking about our view on the current crisis and gathered thoughts/resources around what management teams can do to survive in this climate.
Check out the full presentation + recording of the webinar here.
What the hell’s going on? (COVID-19)
- Pandemic causing instability and augmenting our daily routines
- Global supply chain has complete shutdown due to lack of humans being able to work full time
- High levels of uncertainty on what the longevity and impact will be on humanity
Why does this matter to me as a founder?
As a founder, you have to think about where your investors (the VC’s) and your customers (users) get their money.
- For VCs it’s primarily from family offices, fund of funds, corporates, and institutions.
- For customers is from sales, public markets, debt markets, etc.
If the market is in a downturn, it will trickle down to you (ability to raise capital and increase revenues to new and existing customers).
For venture-backed startups, the foundation is capital. Without capital, you arguably cannot build product and invest in sales & marketing.
For customers, if they can’t manage their their own companies needs to survive (capital, sales) how will they be able to invest in your solutions.
What are the implications of this crisis to startups?
- Customers will be fighting their own fires, and will take longer to close a sale/funding/acquisition that isn’t urgent or mission critical.
- Revenue + Burn will be affected as a result of the customers slowing down in signing contracts, and their risk appetite to work with startups may reduce.
- Hiring will go both ways as employees may be let go (talent pool opportunity), but others will seek stability at larger companies vs going to work at a startup (executive crunch).
- Capital Raise may be affected if this persists in the long run. Funds that have raised in the past 1–2 years should have capital to deploy, but older funds may be low on dry powder.
- Valuation will be affected especially in later stages if this persists as multiples will lower as people will focus more on capital efficiency vs growth as key metrics (possibly from 10X revenue to 5X).
So, how should we plan?
- Budget + Runway Review
Questions to ask as a management team:
- How much cash do we have left in the bank?
- Based on our current spend and NO new revenue, how long do we have left?
- Based on current spend and various scenarios on revenue decline, how long do we have left?
- Booked revenue vs future revenue (signed) — are you going to collect cash from customers that haven’t been onboarded yet? Forecast your churn assumptions.
- Do we have our team fully optimized (i.e. do we actually need everyone right now?)
- What are we spending on today that is material and non-core to our business? (nice to have’s)
2. Sales Forecasts
While reviewing your runway and milestone goals:
- Play out three scenarios (good, neutral, ugly) on how your funnel performs over the next year.
- Try adding a quarter (3 months) to your sales cycle, and reducing the close rate by 25%. Are you still in business a year from now?
- Ask existing customers if they want to hold the subscription for a period of time, if a discount would help them continue using your tool, etc.
- Re-evaluate your near term and long term sales opportunities in the funnel. Prioritize near term closes vs allocating resources to long term deals.
- Would it be possible to offer our product for free during this time with the potential conversion once the dust settles? (making sure this doesn’t add any additional cost to you).
3. Alternative Sources of Capital
Right now, there is no material change in early-stage deployment. If there is a long-term downturn in the economy, then this can change.
As a result, we encourage founders to consider their options (outside of venture capital) and start conversations with investors in these areas:
- Venture Debt
- Small Business Loans
- Credit Lines
- Insider Rounds of Financing
If you have access to cheap capital and it buys you 6–12 months, do it now.
“In the end, it will be impossible to know if we overreacted or did too much. But it will be quite apparent if we underreacted or did too little.”
Feel free to reach out and happy to answer any other questions you may have!
dom@rippleventures.com
matt@rippleventures.com
