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*COVID-19: We are committed to helping our community through this crisis. To that end, our incredible portfolio companies have many materials and products to assist in this time of need, and we will be promoting them in this series. We’ll get through this together - read on and stay tuned.
This post was written by Julius Bachmann, our sister fund Joyance Partners’ Berlin-based Venture Partner, and Anna King, our Chief Financial Officer.
"THE PESSIMIST COMPLAINS ABOUT THE WIND. THE OPTIMIST EXPECTS IT TO CHANGE. THE LEADER ADJUSTS THE SAILS.” - JOHN MAXWELL
The “startup life” has always been characterized by quick turnarounds and frenzied pace of growth. However, over the last few weeks, an unprecedented shutdown across international borders has quickly upended every analyst's estimates of H1 2020 as every company has scrambled to reduce their growth forecasts considerably. For founders, however dire it may seem, this is the time to focus on solutions.
Our portfolio consists of a diverse collection of companies delivering health and happiness, and many of them are heeding John Maxwell’s advice and are “adjusting the sails” to this opportunity. Read more about this on our blog.
But what does this imply for startups who have enjoyed a decade of widespread technological advancement and quick adoption by consumers and overall double-digit growth trends? Having spent the last few days on countless calls with portfolio and non-portfolio companies alike trying to help them navigate this uncharted territory, we are still understanding the level of unpreparedness for 'Black Swan' events. In such a climate, we have been helping our companies to focus on following the Cash In and Cash Out strategy which, in our opinion, remains the cornerstone of outlasting the pandemic induced economic stress.
HOW DOES THIS TRANSLATE INTO ACTIONABLE WORKFLOWS?
The first step is to ensure complete visibility over cash drivers and cash pits with resulting cash flows and develop robust worst-case scenario planning for budgets with revenue drops of up to 50%. A good analysis should also include identification of all the essential parts of the business needed for profitable business now and the level of ops to handle the current business, not formerly expected growth.
While budget cuts might not be the most pleasant thought, often it could mean the difference between an extended boost to the runway and certain closure. To this end, infrastructure and administration spend need to be carefully reviewed including online and offline service subscriptions and only the key services identified should be retained. Freezing hiring and salary increases for the short term and reducing working hours might help ease the stress on the balance sheet for a few months. Furthermore, the marketing spend in light of the pandemic should be revamped taking into account the possibility of an economic downturn and changed consumer purchase decisions.
Next, optimizing the cash cycle would be key to ensure the ship doesn’t take on additional water, through negotiations with suppliers and contractors to delay pay-outs and explore possibilities to increase discounts for longer contracts to lock-in customers to product offerings.
Finally, for those of you fundraising at the moment: As all financing and fundraising activities might take a strong hit, do not be too bogged down with the optimization of valuation and close your round quickly to ensure a good runway assuming no funding for the next nine months. Trying to attain grants through applications for government support might also be a wise move.
While the economic impact of COVID-19 is still to be seen with Q1 and Q2 results being the decisive benchmarks, preparing for the worst has almost always paid dividends. Feel free to reach out if you have ideas to help other founders and company executives guide their companies through these turbulent times.
By Venture Partner Julius Bachmann and CFO Anna King
Julius on LinkedIn@jmbachmann on Twitter