COVID-19: CFO Advice For Startups
At SOSV, we have invested in about 1,000 startups, and we have over 130 employees — spread all around the world.
My first fear as CFO of SOSV was ‘how will our startups adapt in this situation’? A few months in, here is what can improve your odds.
TL;DR
You need to survive this crisis, and in the worst case scenario be ready to trade again immediately once it ends.
- Set up to work remotely/WFH. Support your staff in that transition.
- Can you pivot your product, customers or channels?
- Try to defer or cut all capital expenditure, and everything non-essential.
- Negotiate with your suppliers, government, landlord, banks, and investors.
- Get paid, and money in.
- Some companies in Asia are living your future. Learn from them.
In More Detail
Remote / WFH Infrastructure
- The most obvious: invest in communication tools, project management, IT security.
e.g. SOSV uses Zoom, Mattermost and several other tools. Being a global team, many of our staff are used to working from home effectively. That said, we had some surprises: for instance, additional Zoom calls and daily “local” team synchs tend to take time away from ‘doing things’. Informal time matters too, and some offices include an ‘online coffee break’ every morning.
- Add additional security controls around payments/banking. Otherwise weaknesses in home security / IT systems could be exploited.
e.g. At SOSV when we make a payment:
(1) we capture the bank details via a secure portal
(2) we confirm the bank details with the payee via a telephone call.
We also have dual approvals on each payment, so when the final approver is confirming, he calls the CFO to verbally discuss each payment prior to approval.
Pivot
- Can you become ‘Covid-antifragile’?
e.g. We are seeing a few of our startups thriving (at least for now): food delivery, online services, educational resources… Several also found that they could be directly relevant against Covid-19. Among others, Opentrons, a robot for biotech labs, designed a system to test for the virus at scale. HabitAware, which makes an intelligent bracelet to prevent nail biting and hair pulling, adapted it to prevent face-touching.
- Can you pivot into a better sector ?
e.g. Restaurants doing takeaway, distilleries producing sanitiser, clothing manufacturers producing protective medical equipment, etc.
- Can you take your company online? You might need to adapt the business model too.
e.g. Education, entertainment, etc. One neighbourhood fitness & yoga studio started streaming classes from the homes of their instructors. They replaced the monthly subscription with a tip jar for their coaches (and lowered expenses). Classes went from <20 participants ‘offline’ to over 100 online.
Customers and Monies Due to You
- Talk to your customers. Can they pay early for a discount? Front-load part of it? Pay in smaller instalments over a longer period of time?
- If relevant, boost your customer service.
- Bottom line: you are in this together. Ideally your customers continue to trade, and will remember your efforts once the crisis is over.
Taxes, Rates, Payments to the City & Government
- Talk to your local city & government. Many countries/cities are offering (and likely promoting) deferral of state, local and federal taxes. They might also offer support, salary subsidies and other grant options (see Funding below).
e.g. Ireland (where our finance and legal team is based) has created both a COVID-19 Pandemic Unemployment Payment, and a Wage Subsidy Scheme to assist employers struggling to pay wages.
- Talk to your tax advisors about what is possible here and where the potential for deferral and/or savings are.
Bills
- Prioritize bills that keep the door open and your workforce still employed (where possible).
- Talk to your landlord about rent holidays (some might pass on to you any mortgage breaks they negotiate with their banks).
- Talk to utility companies about deferring payment.
- Talk to suppliers for deferred or staged payments. Can you send back useless inventory? Can you extend or change the credit terms? If not, make sure to use the maximum days given for payment.
Spending
- Reduce spending overall.
- Check your contracts and remove all non-essential costs such as consultancy, leasing, events, capital expenditures, etc.
- Lower marketing spend if you can’t sell.
- Freeze all hiring plans. Focus on your existing people instead.
e.g. Sometimes things can’t be helped. We are launching a new biology accelerator in NYC in May and hired a team for this. We are potentially moving the program partly online, and focusing on Covid-fighting startups.
- If you’re cutting salaries, share the pain. Lead by example from the top down. Lower salaries are more vulnerable. A reduction in salary is better than no salary.
- Look to cut/defer excess compensation. Bonus payments, pension top ups, and any discretionary compensation.
- Make sure all decisions and communication to staff on these matters are handled in a clear, sensitive and legal manner. You are all in this together so make sure staff understand the situation, what they can do to help and how decisions that impact them are made.
Funding
- Look for government, EU, Federal support. Subsidise salaries & costs where possible.
- Talk to your bank about loan holidays & extended overdrafts. Banks prefer you alive, and will have government & societal pressure to help.
- Talk to your investors. Tell them the truth. Show your plan to extend your runway. Existing investors are the most likely to help you in this situation.
- Cash in debt and liquid investments.
- If you have a potential source of funding, take it.
e.g. Despite the situation, SOSV is still investing. We have invested in 20+ companies in the last two weeks. Apply to our accelerators on www.sosv.com
Note On Asia
- China is recovering, and other Asian countries are ending their lockdown. Their situation might inform your future.
- Several of our Asia-based investments across content, online grocery & supply chain, online education, GovTech, remote working, etc. have found opportunities to grow.
- Many of the Chinese startups are preparing for coming mini shut-downs going forward in this new reality, learn from what is happening elsewhere and how business models are changing in order to adapt your own company.
Thanks to our startups, @benjaminjoffe and the SOSV finance department for their ideas and feedback on this article.
Additional links:
United States:
SBA Disaster Assistance in Response to the Coronavirus
https://www.sba.gov/disaster-assistance/coronavirus-covid-19
https://venturebeat.com/2020/03/18/a-coronavirus-survival-strategy-for-your-startup/
NVCA Coronavirus Information and Resources for VCs and Startups
https://www.sba.gov/disaster-assistance/coronavirus-covid-19
European Union:
EU + UK Support Measures for Startups Affected by Coronavirus
https://sifted.eu/articles/coronavirus-support-startups/
United Kingdom:
https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
Ireland:
https://www.thinkbusiness.ie/articles/supports-business-irish-government-covid19/
Survival Guide to Working from Home:
https://askalmanac.com/articles/12642/survival-guide-to-working-from-home-for-remote-employees
Survival Guide for Parents At Home With Kids, Too:
https://docs.google.com/document/d/1lkbSpZiDxifaTL9CORcgBfAdLUyazn4E8-UP1nIAZfQ/mobilebasic
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