Over the past week I have seen a flurry of notes from Angels and VCs to their portfolio companies commenting on the recent economic instability.
The message echoed by all: Batten down the hatches! Review your budgets. Make the cuts you need to. You may not get another round of financing in the near future.
Two such groups that have sent out messages advising their portfolio CEOs of some of the steps they might take to weather the economic storm they are going to face for what many have estimated will be at least the next 18 months, are Sequoia Capital and angel investor Ron Conway.
Ron noted, in an article with TechCrunch, that the current situation is much like that in 2000. So much so, that he simply dug out the e-mails he sent then and circulated them again. The advice:
The down draft in the stock market sends us some obvious “signals” and we can’t help but mention them.
- If you are in a funding cycle, you should raise your funding as soon as possible and raise as much as possible.
- Many companies are ignoring certain VC leads we’ve provided in order to concentrate on the top tier only. While we have preached that in the past, this is no longer the case. Currently, top-tier VC bandwidth constraints, coupled with the market down draft, make it very important to take meetings with any VCs where you can get their attention. We have been working hard to open up this new bandwidth.
- You must aggressively examine and pursue M&A opportunities (unless you have over 12 months of cash reserves!) ro insure you have critical mass (including funding, customers, rolodex power, market share, cash, synergy, etc.).
- Be realistic on valuations – they will fall so be ready and willing to co-operate.
- Look for corporate partners to invest so you can raise more money. You should also consider a sale of your company to your corporate partners.
- If you are entering a funding cycle start raising money sooner rather than later.
- While it’s safe to say entrepreneurs have had negotiating leverage with the “down draft” in the market, the VC community will start exercising their leverage.
I highly advise you to read the full TechCrunch article that goes into much greater detail.
The second group whose advice I think it important to convey is Sequoia Capital. They sent around the slide deck that you can find at: Sequoia Capital on startups and the economic downturn
The most important piece of advice here, I think, is manage what you can control, including your spending, your growth assumptions, and your earnings assumptions.
Companies everywhere have a hard path ahead of them over the coming months (years?). Only those that can create real value, and reach breakeven by stretching their pennies razor thin will flourish in an environment such as this. Can do this? If not, it is time to learn quickly or risk being left in the ‘valley of death’.
