The normal business cycle includes ups and downs and a lot of negative shocks along the way. Welcome to the old normal, writes Gil Dibner, the founder and general partner of London-based venture capital firm Angular Ventures.
This is a guide by Angular Ventures to their portfolio founders and CEOs in Europe, Israel and U.S., originally published on Medium.
The response of a startup CEO to this crisis falls into three categories: (1) people, (2) revenue, and (3) cash management.
Configure your business to thrive in this environment. As business leaders, the first thing we think you need to be focused on is the physical and psychological health of your people and the teams they comprise. Here are a few thoughts:
Be sensitive. Different people on your team will react in different ways to stress. Try to understand these approaches and be supportive of them. Make sure your team members have the flexibility and resources necessary to take care of their families first. People may be facing challenges with child care, caring for older relatives, or caring for relatives in faraway places.
Set up for WFH. Implement whatever “work from home” (WFH) policies make sense for you and your team. Don’t force people to commute to work. Invest in the tools needed to make WFH successful — and take the time as a team to develop new procedures and to reflect on them to ensure they are working well.
Stay put for now. Avoid any international travel for a while. As someone who just returned from an international trip in the shadow of the Coronavirus, I can tell you it’s not fun. The stress that comes from the risk of being quarantined away from loved ones, caught up in travel disruptions, or surrounded by nervous travelers in masks is not worth it right now. Most of your customers and potential investors will understand your decision not to travel in the near future. Don’t be a hero. Focus on remaining effective over the long term.
The problem. Nearly all enterprise sales cycles are going to get hit by this climate. If they haven’t been hit yet, they will be hit soon. As a result, every sales projection you have probably needs to be adjusted. This is for a few reasons:
-- Travel is massively curtailed and probably unwise, which makes it harder to close deals.
-- Conferences are shut down at least for 2020.
-- Customers are under stress and not nearly as focused on whatever you are doing.
What can be done? Every company is going to need to think through its own situation and customer pipeline in specific — and we are very happy to be part of this process and help where we can. While there are no generic answers, here are some thoughts to get that conversation started:
-- Don’t give up on forecasting. While your forecasts may need to be adjusted, you should continue to put effort into building the ability to forecast your business. This is part of learning how to sell and scale your business — and it’s critical in being able to prioritize your leads and allocate resources.
-- Work with customers. Do whatever you can to maintain good and open relationships with your customers. Be understanding of their shifting priorities. Work to position your product as part of the answer to the new stresses and challenges they and their business are under.
-- Make yourself available. For your American customers that perhaps you can not travel to, make sure you have a US phone number they can call during US business hours for help — and put that number right in the product and in your email signature. Email them to make sure they have it. Assign a different person to monitor this number on US business hours each day. Reach out proactively via email and phone to support your customers as they use your product.
-- Rebalance the marketing mix. Shift energy towards online marketing efforts. Conferences and traditional enterprise sales are going to be tough — so make sure to invest in the right content marketing strategies to drive organic traffic to your product. In most cases, this was going to be part of your marketing mix anyway, so the current environment is a good time to invest in it.
-- Emphasize self-service onboarding in your product where you can. While not possible for all products, there are always opportunities to reduce onboarding frictions and make it easier for your customers and potential customers to use your product and fall in love with it. Whether you are selling to solo developers or large oil & gas companies, now is a good time to prioritize product features that support self-service onboarding and increased adoption. (In fact, we have one portfolio company, Candu, that is dedicated to helping companies do this.) Try to use your product to make up for the difficulties you make be experiencing in getting in front of people.
III. CASH MANAGEMENT
Regardless of how serious the Coronavirus gets, the hit to the markets and the economy is already looking severe — and likely to last for some time. This is going to make fundraising hard for all startups. I’m old enough to remember the VC market slowdowns of 2000 and 2008, and it wasn’t pretty. While there is a much bigger “overhang” of venture capital today than there was in 2008, the speed with which capital can dry up can be surprising. Some thoughts:
-- Runway. Make sure you know when you run out of cash (including how much it will cost you to conduct an orderly shutdown of your business if it comes to that).
-- Stress-test your runway calculations for several scenarios. What if revenue growth is much worse than expected? What if it’s zero? What if you freeze increases in spending?
-- Consider slowing down any increases in burn rate. It’s easy to raise burn-rate, but very hard to reduce it. We will all be smarter in one month than we are today — so any spending increase that you can delay is worth delaying, even slightly. Any spending cuts you were planning to make in any event should probably be accelerated.
-- WFH-related cost reductions. Many companies are able to reduce cash burn forecasts due to lower travel costs. Some companies have mentioned to us that they are considering ending their rental contracts at shared/flexible offices given that everyone is working from home anyway.
-- Close the deal. If you are fundraising right now, do everything you can to complete that fundraising as quickly as possible.
-- Keep your milestones and collateral current. Make sure you have a clear sense of what milestones you think you need to hit in order to raise your next round — and think about how those milestones might change if your revenue plan is delayed. Maintain a skeleton fundraising deck at all times that outlines the key elements of your story. You never know when you’ll need it or want it.
-- Plan ahead. Start planning your fundraising a bit earlier than you might otherwise have planned: 6–8 months before your cash-out date as opposed to 4–6 months. Start getting to know the right investors early. We can help.
-- Report. If you haven’t already implemented a steady cadence of monthly reporting to your existing investors, now would be a good time to develop that discipline. You may need their support and the better you are communicating — the better.
Stay safe, stay focused, and remember that many of the best companies in history were born and built in the most difficult times.
Angular Ventures is a London-based specialist venture capital firm backing early-stage deep technology enterprise companies from Europe and Israel. The firm was founded by former DFJ Venture/Threshold Ventures partner and Index Ventures principal Gil Dibner.