When times are tough, cash is king, says Annika Lewis, an associate at Vanedge Capital
From controlling costs to seeking new opportunities, take these steps to steer your business through COVID-19
As the COVID-19 situation continues to expand from a health crisis to an economic one, too, startups and other small businesses are starting to feel the pinch. For example, a recent survey of 1,900 B.C. companies shows that in the past two weeks, about half have suffered revenue drops of 75 percent or more. Business owners may be looking to governments for support—but for guidance, many are going to their most logical sounding board: their financial backers.
Investors are an obvious source of counsel for technology startups right now. They have a direct stake in the fates of their portfolio companies, and their work relies on the good overall health of the startup ecosystems in which they operate. For that reason, Vancouver’s tech investors are keen to share advice with entrepreneurs and leaders who are trying to weather the current economic storm.
Are you a founder trying to navigate these uncertain times? Here’s what 10 top Vancouver investors say you must do to not just make it through this crisis but to come out stronger on the other end.
“Focus on the things you can control”
Boris Wertz, founding partner of Version One Ventures, says startups can expect a long and severe recession, as well as inaccessible capital markets for a significant period of time. “Try to get 24 months of runway,” he urges. “To get there, focus on the things you can control (i.e. costs). There is a lot of uncertainty [as to] how this will play out, so plan with different scenarios and adjust on a monthly basis until you get a better understanding on what the impact will be on your business.”
“Know your expense structure inside and out”
Startups must have a clear picture of their cash position and runway, Vanedge Capital associate Annika Lewis maintains. “When times are tough, cash is king,” she says. “[Entrepreneurs] need to know their expense structure inside and out, and should be managing their resources even more prudently than usual. Companies that are able to make it through the storm with cash in the bank will be in a very strong position to capitalize on growth opportunities.”
“Put a survival plan in place”
At Rhino Ventures, managing partner Fraser Hall says the initial message to his firm’s portfolio companies was to put a survival plan in place. After that, “We pushed them to move toward thinking about how they can thrive in this environment (e.g. Which marketing channels can be capitalized on that everyone else has abandoned? Can you shift your unit economics in the short term to gain market share and set your company up for long-term success?).” Rhino also encouraged its companies to think about key hires who could have a meaningful impact on the business. “With the recent flood of top talent on the market, there is significant benefit for both sides to be able to hire during this time,” Hall says.
“Throw out everything you thought you knew before”
For startups, “Continuously talking and relating to your existing and prospective customers, already paramount, becomes your lifeline to understanding how your strategy and operations should be shifting in the new environment,” says Eric Bukovinsky, partner with Yaletown Partners. “Throw out everything you thought you knew before,” he adds. “This new flow of information becomes your lodestar, creating a transparent set of facts that your company and culture can rally behind, rationalizing changes to your team and prioritizing risks you should underwrite with your scarce resources.”
Even if you’re able to preserve cash at the outset, to stoke new investor confidence, you’ll need to “demonstrate progress and traction once we get through the peak of the crisis,” Relentless Venture Fund managing partner Brenda Irwin says. Irwin also believes that as the crisis unfolds, your current investors will reveal their true personalities. “Investor behaviour will be clarified,” she says. “For example, if your major investor refuses to allow for new funding that could extend runway during these difficult times, typically to prevent dilution, it is a strong proxy for long-term behaviour.”
“Help others if you can”
Bonnie Foley-Wong, who recently moved to Toronto and is head of investment strategy at the Equality Fund and founder of Pique Ventures, says people are overloaded with decisions at the moment. So if you’re a startup that needs something from an investor, “Keep it simple,” she says. “Make it easier for them to say yes.” During any stressful time, Foley-Wong suggests focusing on the “small daily actions that will help you move forward. Make those calls, write those emails, thank people in your network, and help others if you can.”
“Take strong action to preserve cash”
Because entrepreneurs are intrinsically optimistic, Timia Capital chief executive Mike Walkinshaw explains, they may take the view that this downturn will be followed by quick recovery. “As such, there is a substantial risk that young, growing companies won’t take the necessary action to shore up and preserve cash,” Walkinshaw says. “We are urging each of our portfolio companies to take strong action to preserve cash. Cash preservation actions taken now can be reversed later; running out of cash in the middle of a downturn can be permanent.”
“Focus on things that don’t change”
“In this new world, flat is the new growth and renewal is the new sale,” says Maninder Dhaliwal, president and CEO of Lions Gate International. She advises entrepreneurs to focus on things that don’t change. “You need to have a genuinely useful product,” Dhaliwal says by way of example. “Quality and empathy always matter. Business is not B2B or B2C, it’s always H2H—human-to-human.”
“Don’t sugarcoat, remain steady, and be decisive”
Lauren Robinson, general partner of Highline Beta, points to a blog post that features her firm’s recommendations for startups during this crisis. The tip that stood out for me: “Don’t sugarcoat, remain steady, and be decisive.” Essentially, be honest with yourself. “There’s no point sugarcoating things with employees, your board of directors, investors, etc.,” the post continues. “Everyone is struggling (or will be soon.) So don’t pretend things are OK. But you also don’t need to belabor the point. We know it’s rough, what’s the plan? Now is the best time for having a steady hand, and the right mix of honesty and belief.”
“Find new opportunities”
Ramin Behzadi, managing partner with 7 Gate Ventures, says the first priority for founders must be the health and safety of their teams, then the survival of their business. “As their earnings are impacted, they need to start finding ways to save and manage costs to get them through,” he counsels. Next, founders should assess the core business and look for new opportunities. “History has shown that during each crisis, there are opportunities being born to come out as winners post-crisis,” Behzadi says.
William Johnson is a writer and communications strategist based in Vancouver. You can reach him at williamjohnson.ca