FROM SEEDIL VENTURES MANAGING PARTNERS
Audrey Chocron & Cynthia Phitoussi
COVID-19 has surprised us and put us into a global health, humanitarian and economic crisis in no time.
While the health and safety of workers affected by COVID-19 remains the first priority, companies need to adapt all their existing business plans to cope with this new situation.
We decided to put together a short list of very practical tips to share with you as founder, for this critical time.
RUNWAY & HARSH DECISIONS
In order to increase the company’s runway to the commonly requested 18 months minimum, a lot of work on reducing burn rate and harsh decisions to cut on salaries, put people on leave without pay or to part with some employees need to be made these days- Our recommendation is to make these decisions sooner than later. You will always regret the weeks/months you didn’t make the cuts on time.
Also it may be the right time to consider sacrificing some of your stock options to make sure to keep your employees.
Finally, we heard on several occasions from founders that they were afraid to “lose” their teams to competition if they put them on leave without pay at this time. We regretfully doubt this is the case in the current situation, employees would rather stick to their jobs considering the current growing level of unemployment.
CONTINGENCY PLAN- SEQUOIA MATRIX
We found this matrix created by Sequoia with 3 scenarios very helpful to play with:
CEOs, DON’T STAY ALONE IN YOUR DECISIONS
Consult with other founders you know, ask your investors for intros to their portfolio companies CEOs to get their opinion and share strategies and tips.
Consult with your investors, don’t hesitate to bother them to get their help to review your new business plans, team management, or consult on future fundraising etc. Keep in mind that some of the funds’ Limited Partners or advisors have very good expertise on specific topics, could be accounting, management, HR etc. They will most likely be very happy to assist you on specific questions in this crisis.
PREPARE YOUR NEXT FUNDRAISING
It will be difficult to raise funds in the coming months/year. However, although the investment decision will be hard to make, most of the VCs are open for meetings to start initial conversations with exciting start-ups. As you know, investment cycles are sometimes a few weeks/months and you’d better position yourselves now, make a good impression and start this cycle asap, in order to be mature to conclude hopefully when it becomes possible to meet f2f and when normal activity starts again.
Also, reconsider your previous positions: think about going back to investors you already met in the past, whom you had good chemistry with but said you’re too advanced for them (in other words, most probably too expensive) and consider re-approaching them, with a significant drop in your valuation. If they decide to invest they will certainly do it with founders they have already met physically in the past and not with online meetings only.
Remember that, if you as founders feel you currently struggle to raise funds in the coming few months, we, as fund managing partners, have our own concern of investing in the wisest way the funds that have been entrusted to us.
WHICH INVESTORS TO APPROACH RIGHT NOW?
Rather approach funds which have finished their own fundraising vs funds in the midst of it (they will unlikely get to closing any soon). Also, focus more on VC funds (those which already raised their fund) than Business Angels (who are most probably suffering from heavy loss on their other investments like stock exchange and much less likely to enjoy startup investments).
IMPROVE YOUR DECK & PITCH, PITCH, PITCH TO INVESTORS!
All investors have decided to raise their bar and become more demanding on their selection criteria, practice online with your existing investors and new friendly investors who currently have more time than usual (no travel, no event etc). Make sure your message is conveyed as you wish, clear and concise.
REINFORCE YOUR COMPANY’S CULTURE & REPUTATION
You can turn the situation into an opportunity to improve your company’s culture and reputation.
About Working From Home : make sure your employees keep well : Mark Cuban says “how companies treat workers during a pandemic could define their brand ‘for decades”. For example, some companies sent gifts to their employees (games to play with kids), some gave them additional days off to organize themselves with kids etc.
FOCUS ON R&D
When the startup topic and status allows it, try to use this period to focus on R&D. In a few months from now, when things go back to normal, you will come out with a head start with a strong and compelling product vs competition, which WFH won’t affect as much as any other projects.
HEDGE YOUR CURRENCY RISK
If most of your revenues are in USD and expenses in NIS, it may be a good idea to hedge your currency risk and take advantage of the recent rise of the USD/NIS by converting part of your USD right now (maybe 50% for now, and another 50% in a few months). Make sure to get the best conditions and avoid doing the exchange on Fridays (lack of liquidity in the Israeli market) or Sundays (FX market is closed on Sundays).
Although challenging, this period is the time to reflect on yourself and improve your habits, way of being as a person and reinforce your relationships, both on a personal and professional level.
Remember that your mood as the company’s CEO will impact your employees’ state of mind, so be a role model for the team.
We remain at your disposal to continue the conversation.
Wishing you all to keep safe and healthy.
Audrey Chocron & Cynthia Phitoussi