No matter if you are a startup or an Fortune 500 company… times are hard and scary. Once the world realized that the effects of COVID-19 are going to last for a long time, people began to scramble and pivot with their Plan B. Sequoia Capital, issued a Black Swan advisory to its portfolio companies, asking them to conserve cash and cut spends.
Industries across the board have been hit. Aviation companies are facing possible bankruptcy. Hotels are not in a much better place. March to May has been a complete washout for all tourism cities and businesses. Restaruants are fighting for survival. Just hoping ontop Facebook is now exhausting with panic from our communities.
First off I want to say… you were made for this. This era of innovate or die is what you were born to do. Dig deep and prepare to be gritty…. because you are going to need it.
If you are an early-stage start-up then you are going to float. The only costs you have to worry about are yourself/founders. If you are a start-up looking for angel funding, you should be okay as well. You can raise the funds you need locally.
If you have just raised a round of funding or if you have funds for the next six months, you are good. However start-ups in the middle of series A, B and C rounds will be hit the hardest. Such investments require several rounds of meetings and due-diligence between the investors and the co-founders. Since investment firms that lead big investment rounds are based in different parts of the world, it’s not feasible for them to close investment rounds in current circumstances. There are already reports of some of the big investors putting their investment plans on hold for the time being. Big rounds of investment take time and cannot be closed without meeting the co-founders in person. These are challenging times, but I guess a few investors might soon come out with a way as how to close larger deals remotely.
A major trend that will hurt the start-up sector is their ‘burn cash to grow’ strategy. Which honestly… I do not think is such a bad thing. Might stop another WeWork disaster. Start-ups across have burned billions of dollars in their quest for growth. As funding dries up, start-ups will be forced to look at profits. It’s a given that there will be a global recession for the next quarter or two. It’s going be harder for businesses to increase consumers and show traction. Consumers may not buy as much as they used to. The growth metric of these start-ups will suffer making it even more difficult for them to raise a round of funding. Venture funds will have a simple choice: Should I focus on my best-performers or should I risk it on questionable companies? The answer is not tough.
In the long run, I do not see this as a bad thing. It will require startups to really look at their business model and might even give more of an even playing field for all founders no matter their location, gender, race, or age. It will come down to your product and ability to execute.
Thing are changing… there is no doubt about that. It is going to be how you react that will determine your future path. Acknowledge the new times and either play ball or walk away from the game. Startup life is not for everybody… is it right for you?
