What Advice Are Venture Capitalists Giving to Startups in Light of the Coronavirus Crisis?

The coronavirus pandemic is broadly affecting businesses globally, but it is affecting startups particularly hard. In this article, I have gathered some key advice to startups from leading venture capitalists and others connected to the venture industry.

1. Cash runway is paramount

“We suggest you question every assumption about your business, including [cash runway]. Do you really have as much runway as you think? Could you withstand a few poor quarters if the economy sputters? Have you made contingency plans? Where could you trim expenses without fundamentally hurting the business?” —Sequoia Capital

2. There is a new reality

“Startups hoping to get a round done imminently, praying this goes away soon and thinking the world will be the same need to realize there is a new reality. At Arbor Ventures, we are working closely with our companies to reduce their burn immediately, adjust customer expectations, and identify new opportunities that will emerge. This is a time to stop and think about what is next and what significant opportunities will exist. Founders who can escape the noise and capitalize on the needs of a new world order will build great companies.” —Melissa Guzy, Arbor Ventures

3. There will be opportunities to shine

“Your company may be uniquely positioned to step up during this challenging time. There is so much that is still unknown, so be vigilant about assessing the market as circumstances unfold. Run hard at opportunities that may emerge and be ready to adapt your product to meet evolving demands. Use these openings to not only drive incremental growth, but to reinforce your brand and reputation.” —Ellen Herlacher, LRVHealth

4. Keep your friends close

“In an environment like this, it’s critical to maintain strong relationships with your key customers, partners, and employees. Have a thoughtful plan of engagement for each of these key stakeholder groups. It’s never more important than in times of crisis for your partners to feel like you have their back and are there to support them. Investing in this now creatively and with authentic engagement and energy will pay enormous dividends in the future.” —Phil Dur, PeakSpan Capital

5. Over-communicate

“In times like this, people don’t like to be in the dark. Leaders must rise to the challenge and proper communications is the first lever. Keep your employees informed. Keep your customers in the know. Keep your vendors and your partners abreast of what your company is contemplating. If you can be counted on to deliver consistent, recurring information flow, others can act and respond accordingly. Show empathy, acknowledge you don’t have all the answers, and share what you individually will be doing. The mode of the communications, written or verbal, doesn’t matter.” —Michael Yang, OMERS Ventures

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6. Be swift and judicious

“We are doubling down on portfolio support, with the assumption of a recession as the base case. Be swift and judicious with any opportunity to extend burn at the moment. Hiring cuts should be considered very carefully; if they are needed, a proactive approach is ideal and will feel uncomfortable. Let’s validate and be realistic with our monetization strategies and business model with regard to 2Q expectations. Expect delays in fundraising and lower valuations. Be mindful of how the downturn may create silver linings. We remain clear-eyed, risk aware, yet optimistic.” —Kira Noodleman, Bee Partners

7. Freeze fundraising for now

“Hope for the best but plan for the worst. All new business activity and fundraising are probably in the process of freezing up. If you’re in the midst of a financing process, stop negotiating and close. If you’re embarking on a financing process, consider whether you can pull back and wait and/or be prepared to take a suboptimal deal. In the face of a large decision involving a new investment or major new initiative, every partnership meeting, every executive team meeting is going to ask themselves, ‘What’s the downside of waiting on this one?’ In the never-ending battle between fear and greed, fear is gaining the upper hand. Act accordingly.” —Flybridge Capital Partners

8. Opportunities for M&A will dwindle

“This downturn will affect all of us, big and small. As a result, traditional acquirers will be less open to acquisitions and if they do they will look more carefully at the ‘cost’ you will represent to the acquirer. Of course, if you are profitable, you will be in better shape. Good companies will always get bought and smart acquirers will always be there. However, founders need to still build strong relationships with acquirers and be realistic about valuation expectations.” —Pear Capital

9. Execute a plan now

“The thing that we’ve been saying to founders is a variant of an old George Patton quote: ‘A good plan violently executed right now is far better than a perfect plan executed next week.’ In other words, cut hard and do it now. Time is not a friend to any of us. For all of you small, early stage, venture capital-backed companies: There will be huge opportunities on the backside of the ongoing meltdown, but your company must still be alive at that point to be a beneficiary!” —Paul Martino and Eric Wiesen, Bullpen Capital

10. Identify what you can stop doing

“Companies that create enduring value typically excel at discontinuing what no longer adds value. Be ready to make changes in cost structure that will least damage your strengths and will hone your value proposition down to what customers really value. Comb through your cost structure to create a contingency plan for what you would cut. Identify what’s inefficient; what’s nice to have but dispensable; what’s there because of history, inertia, or wishful thinking; what may have worked in the past but doesn’t anymore; and what isn’t creating value as it used to.” —Michael Evans, Newport LLC

11. Investigate new stimulus programs

“I’m seeing VCs urge their portfolio companies to be vigilant in pouncing on new government stimulus programs, such as loan programs for early stage companies through the SBA or other larger programs that are still working their way through Congress. There will be hundreds of billions of dollars available to startups through these programs, and savvy companies will benefit significantly. Law firms can be a great partner in trying to digest the firehose of information that is coming out on an almost daily basis.” —Mike Sullivan, Orrick