These are times of uncertainty, and we know you are likely facing a combination of financial and emotional distress as well as a strain on business continuity.
There are a lot of perspectives being shared across the VC and tech community regarding the next steps to take amid this global pandemic. We would like to share the market’s current outlook regarding the COVID-19 outbreak, as well as some recommendations on how to navigate it. The world is entering a period of strong financial volatility which is likely to have a drastic effect in the economy. Given the current situation, the market believes we may expect the following outcomes in the coming months:
- Global economic slowdown: Periods of strong financial volatility result in elevated risk adversity and decreased spending in consumers and the investment community alike. Valuations of companies may decrease substantially.
- Challenging business continuity: These are unique circumstances. Business activity is being impacted largely, with stringent domestic and international restrictions set in place. Businesses will need to adapt accordingly at all levels.
- Substantial revenue disruption: Decision making is being deferred with the unpredictability regarding the global pandemic. Budget cuts in companies are to be expected. Revenue will most likely be disrupted, and businesses should expect quarters of lower than expected revenue. Cash crunch is likely, focus on avoiding it.
- Shifts in consumer behavior: Social distancing and large lockdown periods will have serious repercussions in consumer habits, some of them will be temporary and some may become permanent. A vast majority of industries will have to evolve to post-crisis business models.
- New work culture: Mostly a perk, the pandemic will change work culture as we know it, fostering collaborative, multidisciplinary teams and shifting the workplace towards an increasingly global mindset.
The current crisis shows an unprecedented Black Swan scenario. With these challenges in mind and the global pandemic evolving day by day, we believe it is in the best interest of every agent in the ecosystem to take immediate action and set up a contingency plan in order to mitigate the repercussions that may result from this outbreak. We highly recommend getting your full team aligned with the severity of the situation and with the main priorities during these times, namely:
- Set safety as #1 priority: Enable remote work, leverage technology and best practices for all; employees, customers and suppliers. Constantly monitor health guidelines and adjust accordingly.
- Mind shift to cash preservation and liquidity: The goal is to extend your runway for at least the next 12 months and avoid cash crunch. This entails an executive mind-shift to minimizing cash burn, efforts to reinforce balance sheet, renegotiations, rethinking overhead, and reevaluating spending in non-core activities within the company. Ideally, aim for an 18–24 month runway.
- Re-evaluate sales forecast: The customer model is changing overnight. Your strategy must be adjusted accordingly. Think about where your customer is going to be and how you can adapt.
- Leverage from technology: Video conferencing, cloud-based platforms, project management platforms or interconnected communication channels; the use of the technology is vital for handling the daily operations more efficiently while working remotely.
- Align your senior team with a wake up call: Daily check ups with the senior team are recommended. Prioritize consistent communication on work, objectives, and implement HR infrastructure for emotional support.
- Establish a game plan: We recommend you hold daily meetings with a dedicated cross functional team monitoring and planning against near, medium- and longer-term challenges. A good example is the “war room” setting mentioned in Bain & Co’s COVID-19 CEO War Room Setting (attached).
- Outline macro scenarios and translate to contingency plans: Assess the impact of every decision in various scenarios and develop a set of immediate actions to take in order to have a runway as far into 2021 as possible. We suggest you base your analysis on Sequoia’s Matrix of Scenarios for COVID-19.
- Avoid inaction: A “wait and see” approach is to be avoided. Action needs to be taken, now. Always prioritize providing guidance and direction to your team. Set up a senior diversified team to enable efficient communication, strategic planning, and decision-making within your organization.
Most importantly, seek support and resources from all stakeholders. From our end, we’ll work closely with each of our portfolio companies to build the strategies for cutting cash burn and ensuring runway extension as soon as possible. We have no doubt we will come out of this situation stronger. Meanwhile, keep the following in mind:
- Macro trends are important, look at them every day and adjust accordingly.
- Circumstances are changing rapidly, update your strategy every couple of weeks.
- In stressful scenarios take “no regrets” decisions. Most of them can be reversed.
- Remember markets are cyclical, and bad times (like good times) don’t last forever.
- Focus on survival rather than growth. In the words of Warren Buffet, “rule number one of our business is to not go out of business. Rule number two is not to forget rule number one.”
- Take on a “cockroach” entrepreneurial approach. No matter how many times they step on you, even if you lose a leg or two, get up and keep going.
- Don’t give up.
We are aware these are difficult times for everyone but we expect Venture Capital to rise from this crisis.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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