Startups: it’s time to call your investors — a VCs open letter to all tech CEOs
The risk of financing drying-up is plausible in the coming months. Founders must react now if they want to maximise chances of survival on the long run. With a potential first come first served situation arising, those who haven’t positioned themselves might have to deal with investors who run out of cash in 6 months.
A (confined) day in the life of a VC
As things get rough, our main focus now is to build a comprehensive assessment of funding needs in our close ecosystem:
- Portfolio startups. How much is left in the bank, what is the burn rate and then the date of the cash cliff? It’s crucial to understand who’s going to need financing, and when exactly.
- Co-investors. What’s their financing power? Are we collectively able to meet the needs of our startups? Depending on their investment phase, the situation will vary widely from a firm to another.
Fund after fund, startup after startup, each VC is doing the same thing right now. We are building the tool that will allow us to make the best investment decisions in a close future.
Not all demands will be met. Our role cannot change overnight, and we’ll stay disciplined in our investment behavior. Entrepreneurs must, as in normal times, build and offer a sustainable project to their investors. Prospects for growth and profitability are key.
Golden rules for communicating with your investors
The challenge is to help your board make quick and informed decisions. This means having all the data available and saving a maximum of everybody’s time.
- Talk to us. Over Communicate, just like you do with your teams and with your clients. We’ve been through other crises. We can assure you from experience that it will make a whole difference when it comes to preserving the relationship. Call/email/whatsapp your investor as often as possible.
- Let us know where you stand. Our startups follow two strategies. First, there are those who want to raise quickly — right away, if possible — to anticipate the cash shortage they see coming. They set-up regular meetings very early-on, and will do anything to speed up the investment process.
Then come the cash pilots. They have enough in the bank to ride this wave on their own, for the moment. Their strategy is to manage their reserves, and to leverage them for an early exit of the crisis.
Whatever your strategy, you should share it with us. Don’t be one of these founders who avoid contacts with their investors while sailing through the storm. - Be real. It’s crucial for entrepreneurs to share presentations that are as accurate and realistic as possible. Share an accurate monthly P&L and cash flow statement of the past 3 months to settle discussions on a stable ground. We need you to present all possible scenarios (monthly P&L and cash flow statement) for this crisis, and to justify your decisions of which scenario is the most reasonable to follow. Prefer simple models with multiple scenarios rather than overworked and complex business plan with unplayable scenarios.
- Set your KPIs to survival mode. Your metrics should match the phase we’re all going through. Cash and… cash! Share your weekly cash flow forecast, anticipation of churn and customer payment status: delays, deadlines, rough negotiations, etc. Give us the full picture! You’re probably not used to this. It’s a cultural shift that will help you on the long run.
Remember, we’re in this together.
XAnge is a Franco-German Venture Capital team with €450m under management, investing in Software, Internet and Deep tech. XAnge is a proud investor in Mister Spex, Kapten, Odoo and Ledger.
