Chasing Capital in the Shadow of COVID-19
April 22 2020
Entrepreneurs today should be focusing on positioning their companies for future growth, not necessarily chasing capital during this time of social distancing. They should be asking themselves “How can I use this time of disruption and quarantine to position my company for its future?”
There is a future and it’s incumbent on all of us to be prepared for it. From James McIntosh’s Streetwise opinion column in the Wall Street Journal: “The coronavirus pandemic will eventually be behind us, maybe soon, maybe not. Either way, the scars will long persist for an entire generation of investors and future managers now living through what is rapidly becoming the deepest downturn since World War II.”
But there remains a future and it’s a future for which we must prepare.
When startups ask me what to do, I respond with questions for them to ponder. I will share those questions in a moment, but let’s first recognize that investors – small and large – have all pretty much hit the pause button waiting to see where this thing is ultimately headed. Prior commitments are, by and large, being honored. But let’s be realistic. Investors will be looking to protect their existing portfolio companies. In the near term, we will likely see more bridge rounds by pre-committed, previously invested sources of capital and fewer new investments. Valuations will soften due to larger market forces – so be prepared for that in future rounds.
But most immediately, do everything in your power to extend your runway. How? Ask yourself these questions:
Have you enhanced your ability to cut operating costs?
Have you converted fixed costs to variable costs wherever possible?
Have you strengthened your balance sheet?
Do you know your operating cost leverage points?
Have you opened a dialogue with customers and vendors about adjusting terms – to help your company and theirs?
What can you do without?
What can you defer?
I recommend that you examine your underlying business model to reflect your new normal. Entrepreneurs should be updating their business plans to reflect the emerging changes and challenges we are currently and will continue to face. Keep it current and realistic. Can you pivot to an immediate new product NOW? Can you get a new customer NOW?
Have you explored where you can get immediate help? Are you prepared to quickly apply for help? Are you talking to your current investors regularly? Can you use this time to institute a regular and frequent update to all your constituents? Don’t be afraid to ask for help!
Are you looking after your teams’ collective and individual well-being? How can you help your staff generate personal income? Can your team fill in the gaps left by prior outsourced functions?
Imagine the day in the near-term future when you are in front of a potential investor, a potential new customer, or even a potential new team member: How will you answer them when they ask “What did you do during the crisis to enhance your company’s future?”
Writer: John Hanak