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8 tips: How startups can survive the COVID-19 economic crisis

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8 tips: How startups can survive the COVID-19 economic crisis

Dan Rosen.
Editor’s notice: Dan Rosen is the long-time chairman of Seattle-based startup funding group Alliance of Angels. This publish first appeared on LinkedIn. 
From: Dan Rosen
To: All angel traders and their portfolio CEOs
Being educated as a scientist, and having lived by way of a number of funding cycles, I’ve been requested to share my perspective on the monetary impression of the COVID-19 pandemic on startups.
I firmly consider that the human and societal impression of COVID-19 will probably be excessive, despite the fact that we’re on the early stage of this pandemic. If we, as a society can pull collectively, enact social distancing and different technique of delaying the unfold of this virus, we are able to come out of the opposite finish of the tunnel. Most individuals actually don’t perceive the idea of exponentials — it’s not in human nature to understand what this implies.
As a scientist (a biophysicist at that), this type of modeling is one thing I used to be educated on early in my profession. At this level, suffice to say, we can not stop COVID-19 from spreading. Our greatest hope to attenuate the impression is to (a) lengthen the time it takes to impact a considerable portion of the inhabitants and (b) put together for the impression that can have. The key proper now’s to make sure that our medical system just isn’t overwhelmed by this impression.
In 12-to-18 months, I anticipate that we are going to have a viable therapy for these with the illness, a working vaccine and that a big sufficient share of the inhabitants can have developed immunity by way of recovering from being uncovered to the virus. The mixture of the herd immunity and a vaccine for probably the most weak will potentiate the impression, supplied that we are able to wait it out by way of mitigation measures within the meantime.

I went by way of this element as a result of the depth and timing of the disruption can have main impression on the startups we help and fund. A deep and shorter disruption may truly be extra extreme for each our society and our corporations, so let’s pray that our remediation response works.
For startups, this will probably be a very troublesome time. In the recessions of 1982, 2000, and 2008, funding for startups dried up. While many have heard me say that nice startups are sometimes created throughout market downturns — typically, simpler mentioned than executed. So listed below are my recommendations:
Survive
This is fairly apparent. If you don’t survive, there isn’t any upside. So the entire methods beneath are about survival. It is time to place apart the great plans to turn out to be an enormous firm with world-beating merchandise. None of this issues for those who don’t survive.
Cash is king
Startups don’t usually die for an absence of concepts. They die as a result of they run out of money. Put in place a plan to preserve money. Be aggressive on this plan; early motion will probably be far more impactful than later motion. Have at the least 12 months of money available, as a result of it’s probably that’s what you will have. Even if the COVID-19 disaster resolves itself a lot before that, the turmoil left in its wake will persist, notably for startup.
Forget about elevating cash
Angels will proceed to speculate, however anticipate smaller rounds, at decrease valuation, in corporations that don’t require giant quantities of money. For current portfolio corporations, the sudden downturn out there, coupled with the disruption of virtually all enterprise as ordinary will trigger fundings to stall. While VCs and angel traders might need money to speculate, the pullback will set off a triage mode (because it did in earlier downturns), the place investments will probably be in choose corporations.
Even some good corporations gained’t get financed. Assume that this pullback will final till after the COVID-19 disaster is over and add a number of months to that for them to get again on their ft. M&A will dry up; for those who have been in discussions final month, anticipate that nothing will occur till this disaster ends. If you’re fortunate, you may get your current angel traders to assist carry you a bit, however anticipate it to be actually expensive and solely in case you have a plan to make the cash final a very long time. And, as I consider is all the time prudent, talk effectively with you shareholders, giving them the dangerous information and the great.
Revenue is more likely to be curtailed
If you’re relying on contracts within the pipeline to shut, you shouldn’t. Most massive corporations, authorities shoppers, and particularly small and medium companies may even go into survival mode. Unless you’re supplying a services or products that they take into account completely mission-critical, you must anticipate that income will probably be deferred for at the least six months and possibly longer. If you current contracts have cancellation clauses, anticipate that some will probably be exercised.
Coronavirus Live Updates: The newest COVID-19 developments in Seattle and the world of tech
Opportunities
If you’ve a approach to shift some or all your enterprise to be a part of an answer to the COVID-19 drawback, keep alert to take action. For instance, whilst GM is closing vegetation, it’s find out how to make ventilators and respirators.
While there will probably be nice financial dislocation that impacts small and huge companies, there are nonetheless some alternatives, particularly for direct-to-consumer companies. People are sheltering at residence and on-line loads. If you’re promoting one thing that can make their lives higher throughout this troublesome interval, there are alternatives. Examples is perhaps issues like on-line studying or lessons, on-line consulting, and even issues that deliver a smile in these troublesome instances. Similarly, any services or products that makes working from residence simpler can have a prepared market (in case your prospects can discover you on-line).
Downsize
While it is a actually troublesome choice, survival is the only most vital factor. Many corporations should pare again to the important. Salaries will should be slashed (as they have been in 2000 and 2008), if corporations will survive. I’ve already heard from a number of of my portfolio corporations that they’d company-wide conferences and agreed to 50 p.c wage cuts.
While the pandemic will definitely curtail journey, make {that a} coverage. Cut all contract assist that may be minimize. Cut advertising and marketing and gross sales spend till the your prospects are again to work and shopping for as soon as extra. Again, any step that cuts your burn early on, can have a long-lasting impression on the later money steadiness and your money horizon.
Non-equity money elevate
Look for sources of money which are non-equity. Think of how to get authorities grants. Explore the SBA applications which were put in place to assist small companies. Be artistic about discovering sources of money to remain alive, together with probably performing some short-term offers that assist the instant crunch. These are issues that you’d by no means have thought-about doing three months in the past.
Stay alert for the inflection level
As with virtually all issues in life, this too will go. It is difficult to inform what the nation and market will appear like when that is previous, but when your organization is alive and versatile, there will probably be nice alternatives. Watch for it, since none of us can predict when it’ll occur.
Hope that is useful. Comments appreciated.

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