Covid-19: layoffs at startups, opportunities, adapt or die - "only the paranoid survive"

Investing and Markets 📈 Startups Crowdfunding 🔨
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:money_with_wings:

Read: https://www.bizjournals.com/sanfrancisco/news/2020/03/25/investors-advise-startups-as-new-realities-are.html

Investors advise startups as ‘new realities are sinking in, saying goodbye to great employees’

Bay Area angel investors and venture capitalists are working the phones, advising leaders of their portfolio companies and other entrepreneurs on how to navigate today’s choppy waters.

For some startup leaders, this is the first downturn they’ve experienced in their professional careers. And even for those with vivid memories of the 2008 financial crisis, this downturn has occurred far faster and steeper.

“Folks are very much shellshocked, but the level of the shock is geographically variable,” serial-entrepreneur-turned-venture-capitalist Ryan Gilbert of Propel Venture Partners told me. “I’ve spoken to founders in New York City. Some of them have been sick or their friends have been sick. They’re pretty much in a ground zero situation in a war zone.”

The severity of the public health crisis of this downturn has placed the bursting of the credit bubble in the shadows for some. But the cash squeeze is changing the rules of business for startups, real estate investors and chief financial officers.

“This environment can best be described as ‘risk off,’ and unlike earlier this year, ‘cash isn’t trash’ these days,” Ron Suber, who has invested in several fintech startups, told me. He said investors are often finding better deals, or waiting for better deals to emerge, in the secondary market rather than looking for new investment opportunities. “Many funds are getting redemptions and margin calls, which has led to a major shift of who buys what and where,” he added.

That takes a toll, financially and otherwise.

“It’s not just managing capital that I am focused on with entrepreneurs but also guiding psychology and self care in these rapidly changing times,” Suber said. “New realities are sinking in, saying goodbye to great employees who have supported the journey is brutal, addressing the ‘new normal’ all while focusing on the opportunities ahead.

“For some first-time entrepreneurs, this is their end of innocence and indifference,” Suber said. “This environment has forced some companies to reduce salaries, cut hours to 30 per week or move people from full time to by the hour.”

Much of the national attention has been on hourly workers losing their jobs in travel, restaurants and hospitality. But there’s a wave of layoffs building in fintechs and other companies large and small that employ workers in technology, legal, public relations, marketing and other fields tied to startups in technology and the housing market, which Zillow said this week is no longer “functioning.”

In other words, Suber and other investors have their hands full. Suber said he’s spent much of his time in recent days on the phone with entrepreneurs grappling with a range of questions that include how to cope with lack of demand, how long will the slowdown last, which unprofitable customers should be cut, and when will the credit markets thaw.

Suber also said that companies are weighing whether to proceed with committed investments and mergers and acquisitions. And for those that do proceed, price and terms may no longer make sense.

A primary concern for startups is how to extend their cash runway, given that many are not profitable nor are they generating cash.

“My advice to entrepreneurs is to move away from customer acquisition to customer retention. Nothing is more valuable than a customer you’ve already paid for and you already have a relationship with,” Gilbert told me. “Start finding ways to do more for these customers.

“We’re going to hear more about ‘retention marketing,’" said Gilbert, who encourages entrepreneurs to depend on these existing customers for word-of-mouth promotion and incentivize them with referral bonuses.

Gilbert said startups will see pre-money valuations cut in half. Others face the window for initial public offerings being closed for up to two years. That will send shock waves across the Bay Area’s startup ecosystem.

Brex co-CEO Henrique Dubugras this week shared tips with other startups coping with the new environment, urging them to be “paranoid” as they focus on survival.

Suber and Gilbert anticipate that they’ll continue spending many hours talking with entrepreneurs in the days ahead.

“Social distancing doesn’t mean financial and emotional distancing,” Suber said.

https://www.chron.com/coronavirus/article/covid-19-will-lead-to-wage-reductions-report-15144193.php

Hundreds of thousands of workers in King County and across Washington state are in industries that are at immediate risk due to impacts from the outbreak of the novel coronavirus, according to a new report.

A new report commissioned by the Seattle Metropolitan Chamber of Commerce estimates about 40% of all jobs in King, Snohomish and Pierce counties will be in the very near-term impacted “severely” by COVID-19 in the form of wage reductions or temporary layoffs. A lot of these jobs will start up again once the social distancing measures are lifted, the report said, but it warns: “Not all businesses will survive the challenge.”

“The Puget Sound economy is experiencing an economic shock that will take many months and beyond to recover from,” the report said.

The report identified industries at immediate risk and likely near risk from impacts related to the spread of the virus. It found, using data from the first three quarters of 2019, that 656,400 workers in King County are in industries that fall into those categories, with 288,100 in industries at immediate risk and 368,300 at likely near-term risk.

Wonderschool, a startup that’s most easily described as Airbnb for childcare, had to make that call last week when it laid off 75% of its staff, or about 50 people, Business Insider has learned.

The boutique hotel has fired a majority of its 100-person staff and plans to close 400 units in 10 locations

FT:

With reduced revenue and uncertainty caused by the COVID-19 outbreak, Seattle tech startups are temporarily letting go of workers to help keep their businesses afloat during an unprecedented economic period.

TripActions, the corporate travel startup backed by Andreessen Horowitz’s massive $2.2 billion growth fund, laid off 296 employees across business divisions on Tuesday, Business Insider has learned.

The company had over 1,000 employees prior to the cuts, according to startup database PitchBook, which would mean that the layoffs affected roughly a third of its workforce.

Once a rising star among Silicon Valley’s startup set, TripActions business has come to a grinding halt as businesses across the globe implemented travel bans and cities enforced shelter-in-place orders during the coronavirus pandemic.

https://www.inc.com/peter-cohan/layoffs-are-rising-at-unprofitable-startups-heres-how-to-make-sure-your-company-isnt-next.html

Many have been warning since last fall that winter is coming for unprofitable, venture-backed startups. It is now becoming increasingly obvious that the season of investors refusing to fund these self-immolating ventures is here. The New York Times reported on 30 startups around the world that have eliminated over 8,000 jobs in the last four months.

Funding for startups may also be harder to find. The National Venture Capital Association reported that 2,215 U.S. startups raised money in the last quarter of 2019, which was the lowest since late 2016, according to the New York Times. I’ve seen for myself that venture capitalists will tell money-losing startups to get profitable before they’re willing to invest more.

Meanwhile:

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“Bad companies are destroyed by crisis, Good companies survive them, Great companies are improved by them.”
– Andy Grove (Intel co-founder)

“Only the paranoid survive.”
– Andy Grove’s book

Found this write-up on LinkedIn:

As someone who has gone through a fair share of ups and downs, here are some of my thoughts for start-up entrepreneurs on how they can weather this unprecedented storm.
…

  1. Cut burn and conserve cash

A nimble start-up should have the capability to readjust to new realities and cut burn without losing its footing. A slowdown is a good opportunity to systematically peel the layers of the onion, examine each cost and identify the hidden costs, which while adding to the burn, are no longer creating value. This is the time to prune extraneous costs that seem like a nice to do or an investment way out into the future.

Cutting jobs should be the last option. There are often many other things companies can do to reduce costs without doing layoffs. Finding creative ways of reducing costs that don’t entail bringing pain upon our team members is the need of the hour.

Such cost optimisation is also helped by new options which keep opening up over time. For instance, SaaS solutions provide an easy and cost-effective option to large and expensive tech development projects. Similarly, a range of well-priced, domestic CRM solutions offer capability that is comparable to leading global brands and at a fraction of the cost. Because such transitions often necessitate a round of internal training and limited-period disruption for some teams, these decisions tend to be deferred in favour of status quo.

  1. Extreme prudence on customer acquisition spends

A rising tide lifts all boats. When things are upbeat most start-ups benefit from the buoyancy and feel good about their business prospects. However, when the tide turns, panic sets in. Often entrepreneurs feel that the slowdown is specific to their business and are tempted or guided to spend more on customer acquisition. This is unlikely to lead to any lasting gains.

As demand dips, the efficiency of marketing goes down. So, a start-up ends up burning a lot more money just to hold on to a certain position. When the burn is tapered off, the “customer relationships” propped up by the burn wither away and the business settles at a lower, more stable point.

In a slowdown, it is ok to grow less or even settle at a lower level. Spending a lot of money to first grow fast, then to hold the level and finally to roll back is wasteful. Smaller steps that move one sustainably forward is a much better approach to build lasting scale.

Entrepreneurs would do well not to fight the reality, but instead adjust to it rapidly. It is better to pull back on marketing and instead focus on user experience and organic growth. When the tide turns again, this smaller but satisfied cohort of users will help propel the business ahead in a strong way.

  1. Shorten expected payback periods

Uncertainty is a part of business - whether it be macroeconomic situation, technology-led, user behaviour related or competitive dynamics. In times of heightened uncertainty, it makes better sense to work on tighter time frames than longer ones for payback on your spends. Now is not the time to push for 100% growth rates at negative unit economics. Now is the time to fix the unit economics of the business.

If, as an entrepreneur, you were working on a two-year payback for your projects, tighten it into one year now. If it doesn’t make business sense in a year, the chances of it being any different over two or three years is still less.

  1. Say no to embarking on new adventures i.e. new businesses/acquisitions

Slowdowns and crises are the times to dig in your heels and not to stretch yourselves thin across new initiatives.

While going through a challenging phase, it is better to double down on existing projects and priorities rather than starting new projects of passion. Taking on-going projects to completion adds more value than starting more projects with long term intent. In such times any significant, forward looking investments are best avoided or deferred.

  1. Do talent replenishment where needed

Building a team is not a linear process. Hiring is done depending on the nature and quantum of anticipated work requirements. When the business cycle is subdued, hiring needs to be precise and thoughtful. If a team member leaves, any replenishment should be well-considered and not automatic. It also makes eminent sense not to hire aggressively. Instead of hiring ten engineers in one go, it would be prudent to first hire five, deploy them and then assess the balance requirements vis-a-vis the other skills needed in the team etc.

  1. Fix the broken/missing plumbing

In high growth spurts, there is often no time to fix the plumbing. All resources are geared to service this growth. However, the “plumbing” of technology, culture, and customer experience needs periodic updation to set the business for long term success.

In phases of modest growth, an inward focused approach helps execute such maintenance activities, which play an important role in operating a long term, healthy business.

  1. Focus on building capabilities

Don’t just get sucked into the daily firefighting during an extended crisis like we are all in currently. Times of subdued growth provide a good opportunity to build or strengthen capabilities that create lasting value for the business. For instance, executing projects that drive higher conversions or improve customer experience create tangible value by improving key business metrics that add to the bottomline.

Not all capacity creations require money - some require time, effort and management bandwidth. Business slowdowns provide the right window of opportunity for such projects to get off the ground.

  1. Strengthen the culture

Organisational response in times of crises are the pillars on which the company’s culture is built. It is relatively easier to be supportive and open in upbeat times. But, it is in times of crisis that team members look for care and genuine concern. Small, thoughtful gestures count for a lot and create lasting bonds between the company and the team. For instance, creating a virtual helpdesk for team members and their families in case they face any exigency is very reassuring. Or do a video call in small groups with the broader team - not just the leadership team.

Clear and consistent communication are the lifeblood of a company’s culture and more so in challenging times. Any major decisions, any impending shifts in the organisation’s strategy should be shared with the team proactively and with clarity to avoid anxiety. For instance, doing daily check-ins with your team and ensuring everyone is on the same page and has gotten the opportunity to express their point of view. Equally important is to be extra nice and courteous to your colleagues, especially given virtual meetings over Zoom/Hangouts can quickly devolve into something very transactional.

  1. Set the right expectations with investors and employees around growth goals

Challenging times are better handled when key stakeholders are mutually aligned on intent and action. Typically, investors prefer strong momentum in their portfolio companies. They also have a shorter investment time frame for the business compared to the entrepreneurs they have supported. The entrepreneurs on the other hand can afford much longer time frames and can easily absorb three years of high followed by two years of low because of their longer operating horizons.

Decisions about business strategy in demanding times should be determined by thinking about what the business can sustain. A high momentum strategy that ends with the company running out of funds and imploding is in nobody’s interest. It is important here that discussions be anchored around meaningful business metrics like unit economics and margins rather than vanity metrics that while indicating an upwards trajectory are essentially driving the company off the cliff.

  1. Stay Positive

It is the nature of entrepreneurship to swing between irrational optimism and deep despair. Headwinds during challenging times impact all businesses, but individual start-ups may feel under siege under the assumption that this is specific to their business.

In times of such volatility and uncertainty, it is important to be driven by the needs of one’s own business and not respond in panic to what competitors and others are doing.

It is better to have flexibility around scale and timelines rather than rigid, predetermined notions benchmarked externally that won’t adapt with change in situation. When the external environment is challenging, it is most important to keep one’s head in the game and resolutely prepare for better days. Settling for lesser growth, reducing scale, eliminating loss making practices, pricing adjustments etc will help the company be in control of its destiny. Winning is important - but not giving up is paramount.

Intel’s Andy Grove said it well: “Bad companies are destroyed by crisis, Good companies survive them, Great companies are improved by them.” Let yours be amongst the great companies that are improved by this crisis.

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:warning:

  • Assess your burn rate.
  • Rejigger your business model for survival/opportunity.
  • Change your operation plan/cut costs.
  • Move with speed and urgency.

“Serial entrepreneur lays out coronavirus survival roadmap for startups” - San Francisco Business Times

Blank, a serial entrepreneur with an estimated net worth of $2.5 billion, arrived in Silicon Valley in 1978 and went on to have a successful 21-year career in the tech world — co-founding or working in eight startups, four of which went public. He helped lead the “lean startup movement,” which outlines how a startup can quickly find product fit, and teaches this scientific approach to managing a startup at Stanford University.

Having gone through three major financial crises before, Blank knows exactly the plan companies need to follow when all hell breaks loose and the future looks uncertain. The ones that follow this advice survive, while the ones who don’t, perish. Trust him, he says, he’s seen it before.

“If you can’t think independently, if you’re waiting for orders, you’re dead on the battlefield,” he told me.

First, a startup needs to determine if it is cash flow positive or negative. In other words, does your company’s revenue bring in more money than the expenses. If the answer is no, here is what Blank wants you to do:

Step 1: Assess your burn rate — how much cash you’re spending, and how long you can last before it’s gone. Remember, all those growth projections you had before coronavirus are useless now. Expect this downturn to go for another three months, six months or even a year.

Step 2: Pivot, or as Blank says, “rejigger your business model” for survival or opportunity. In addition, you’ll need to change your operation plan, meaning reduce spending. Unfortunately, this may mean laying off staff.

Step 3: Move with speed and urgency. Do step one and two immediately.

Blank spoke with me about his survival strategy for startups, going into greater detail as to common, yet deadly, mistakes founders make during a crisis and the opportunities that may exist.

What’s the most common mistake you’ve seen startup founders or CEOs make during a financial crisis? I’ve lived through three of these crises — in 1987, 2000 and 2008. Unfortunately, one of the biggest costs for startups in their early days are their employee personnel costs. You might have to be laying people off. And the mistake I’ve seen founders, CEOs make every time was that they never cut enough on day one. What’s worse was they would cut 10% of their employees and then go back later and cut another 10% and then go back again and cut another 10%. What this did was destroy morale. Everybody was perpetually looking over their shoulder. Productivity dropped to zero. Instead, they should have done one big layoff on day one. Sure, everybody will feel horrible, but at least they would know the laying off was done and they could get back to work.

Isn’t that a little harsh? While that seems cruel, it’s actually healthy because you get to be a surviving company. Then you get to rehire those people after it’s over. I’ve seen companies go out of business because CEOs were unwilling to make the changes that were required immediately. This is not a time for "let’s have a meeting to have a meeting to plan the conference rooms that have the meeting.” This is something that needs to be done quickly. Not with panic, but with speed, urgency and compassion.

When is it time for a startup to surrender? If there is no possible way to pivot your business model and you have three months of cash left, shut it down now and distribute the cash back to your investors and your employees. If you think you can survive and there are pivots and other things you could do, try them until you run out of cash, at least to the point of being able to pay employees.

What’s the worst thing a founder who is headed for the end can do? You never run it to zero without making sure you have compensation for every one of your employees. The worst thing a CEO who is running out of cash can do is not have at least two weeks of paychecks for employees. Don’t run it to zero and then tell people that week we’re out of cash. For me, that’s either the most naive or stupid or venal thing you could do. It is up there on startup sins right now.

Where do you see opportunities for startups? What’s going to be painful for lots of startups is going to be huge opportunities for others. If you happen to be in a space of telemedicine, online training or online education, your business is booming. Another opportunity for startups in San Francisco and Silicon Valley is that you can hire people you never could have imagined before. It’s incredibly hard to hire world-class talent because you’re competing with not only other startups, you’re competing with the giant sucking sound of Google and Facebook and Uber. But as layoffs grow, a good number of very talented people are going to be on the street. If you’re a startup with cash in the bank, I would be over hiring world class talent, even if you don’t need them now. These are huge opportunities for startups that are in the right place at the right time.

What surprises you most about the current financial crisis? This is a financial crisis that’s artificially driven by a pandemic. All the layoffs we’re seeing are not a fundamental flaw in the economy — though they’re exasperating all the things about a bubble economy — but it’s not like the bubble burst. No, we all got sent home to save thousands, if not hundreds of thousands, of lives. That’s a very different type of economic crisis. That’s never happened in the history of the world economy. No one’s ever parked the economy to save a couple hundred thousand lives. And we’re already hearing about a backlash. Some are saying it’s more important to save our airlines than it is to save grandma.

Do you agree with that sentiment? Of course not — given I’m in the age group of grandma.

https://www.bizjournals.com/sanfrancisco/news/2020/03/26/serial-entrepreneur-lays-out-coronavirus-survival.html

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Thanks for posting above . I had a long discussion a couple of days ago about this and it got quite passionate.
I have had a concern for a good while that raising money has been too easy via the ECF route and money has been raised quite easy and at valuations that are to be honest insane (I have put money in to a good few so contributed to this problem).
As a result I believe that many start ups either scaled up too quickly (staff/office size/business dev etc etc) and ramped up the fixed costs and lost the lean nimble start up mentality as there was the expectation that the crowd would do round 2 so cash had become not as precious a resource as it should have been.
This has also not been helped by the relatively low focus in market testing and finding out if someone will actually pay for your product and to be sure its not just something that you think people want , but either they don’t ro the prize they like it at doesnt cover costs.
The relatively easy access to cash and subsequent cash has also I think led to the rope not being cut quick enough on projects or companies even though I hate the term pivoting to something that might generate sales.
I think that there has been an underlying problem here for a good few years and the recent issues have accelerated the fall out.
I really hope that the good early stage companies get through this and the ones that don’t also when they try the next one get a bit more ruthless in self critique and get back to being nimble and reactive.
I agree with above that a lot of funding now will move to growth capital even at the early stage, a lot of the crowd will have empty pockets and those that have cash will want to preserve it more. Its going to be very tough.
Hoping not too many lose jobs and that those who do use the time to think about new ideas and also look at upskilling in various areas to open up more opportunity going forward. The upside might be a change in the way fixed cost are looked at , who really needs a big office and travel overseas often, not get caught up in FB and Google and bidding wars and look for partners where you can revenue share and reduce overall CAC and churn.
Number one , lets hope we can get rid of the rona and then look forward to a better future, even if it takes 18 months to get there

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This may be harsh, but funds should go to businesses that are viable. If they are not viable then even though we are in very stressful times I don’t see the logic in pouring more money in to a dead duck.

Shut down and come up with something that is viable. There is a big lesson being learnt I think currently that really does have a massive impact on start ups. It’s become trendy to do a start up and go for a unicorn, lots of tradesmen set up small builders companies etc and have gone down when a developer has gone bust and they have not been paid. Many of those founders put up PG’s.

Massive difference between a viable company that has been screwed short term by the rona and ones that are living the dream with no tangible signs of profitability.

I am a passionate tech believer and investor, but don’t really see why tech should be treated any differently. If you cannot generate revenue to cover your costs and you cannot raise funding as investors don’t believe in your business or your valuation they consider too high then its not going to work.

Growth doesn’t buy a beer on a Friday night , you need profits for that and real ones that are cash and not inflated intangibles and accounting games.

"But many start-ups in the country say they cannot access such funding. That’s because they have to prove they would be “viable” businesses if not for the disruption caused by COVID-19, potentially blocking out ventures that focus more on growth than profits.

“The loan program is not relevant to a lot of start-ups in the ecosystem,” Russ Shaw, founder of Tech London Advocates, an industry lobbying group, told CNBC last week. “Many if not all are loss-making, so they would not quality for that support.”

Meanwhile, some lenders have come under fire for requiring personal guarantees to issue the emergency loans. Agreeing such terms would mean banks could go after individual company directors’ assets if their business goes under.

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I agree with you.

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I agree that there’s a difference between toilet companies, that just flush money down the drain and growing companies.

But by that simplistic, binary definition, Amazon was unviable for a pretty long time.

Would you have advocated for it to collapse?

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Back of the envelope:

  1. Management, vision, execution.
  • Jeff Bezos talked about his plans for years in his interviews and he stuck to his plans (they have that in common with Elon Musk).
  1. 1995-1996 financials before the 1997 IPO:
  • Amazon’s expenses kept rising as revenues skyrocketed - not a good sign, since it couldn’t generate profit:
    [Fixed the screenshot]

Screenshot from 2020-03-31 21-23-40
Screenshot from 2020-03-31 21-23-401126×718 176 KB

  • But, they raised enough money (see Cash & Cash Equivalents below) that served as dry powder during the good times and the bad times:

    Screenshot from 2020-03-31 21-23-29
    Screenshot from 2020-03-31 21-23-291150×638 133 KB

  • The funding came through selling equity and the sums were huge. So, despite making losses on the operating front, they kept investing new money (from VCs, etc) into R&D and capex (“Purchases of equipment”), which gave them a lead in the new Web 2.0 era compared with Walmart and Borders:

Screenshot from 2020-03-31 21-27-36
Screenshot from 2020-03-31 21-27-361114×1356 350 KB

  1. They IPOed before the Dot Com era was over and weathered the storm that came after 2001 through luck and awesome management.

(Source - Amazon’s IPO prospectus circa 1997: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/e5f6d0be-db89-4adb-8ba1-496ae09272cb.pdf)

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The layoffs, compiled by CNBC based on multiple media reports, included more than 3,800 people spanning more than 40 companies operating in sectors including hospitality, transportation, meal delivery and artificial intelligence. They are headquartered across the country, in California, Austin, Boston and Portland, Ore., among others. The companies have collectively raised nearly $15 billion, according to Crunchbase data.

The job cuts underscore the far-reaching impact of the crisis and shows that once fast-growing businesses in Silicon Valley and beyond are not protected from the fall-out.
…>
After a period of heavy investment, some venture capital firms have signaled it’s time to buckle down as the public health crisis ushers in an economic downturn. Sequoia Capital warned its portfolio companies earlier this month to get ready for major changes and limited runway. Some start-ups turned to layoffs or total shut-downs after funding fell through. Service, a start-up that found disruption compensation for travelers, closed up shop on March 20 after both a fundraising round and acquisition attempt collapsed during the accelerating crisis, according to a message on its now-defunct website.

In addition to the layoffs, several companies have said they’re furloughing staff or putting them on standby. Car sales start-up shift is furloughing 30% to 50% of its 250-person operations team, according to a Protocol report. Jobs platform ZipRecruiter is furloughing 49 on top of the more than 400 it let go, Business Insider reported. Flexible workspace provider Knotel is furloughing 68 workers in addition to the 127 it laid off, a spokesperson confirmed to CNBC, making up about half of its 394 global employees prior to the cuts.

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This is very true. And so very hard to do. I’ve been there and wish only fortitude and luck to those in that position today. You want to hold on to what you’ve painfully built, you want to believe that this business can survive, you want to keep building for the future instead of taking two steps back, you don’t want to let team members down. It is so hard. So some of it is loss aversion (similar mechanisms at work in investor psychology too).

And tech startups have had a good few years of cheap capital and up markets so this will be a new experience for many CEOs. Conserve cash is job 1 for startups.

The peactime/wartime CEO bit of Ben Horowitz’s Hard Thing About Hard Things book is good on this too.

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Yep, I have been guilty on both sides, not cut loses when running my own company and recognising its time to admit what you are doing is not going to be profitable or interesting to potential new investors and also from an investor side throwing more money into something that I should have cut my losses on.
Hard lessons learned and I know to a lot of personal cost if you don’t cut the rope its very rare to come out well the other side and a fresh look at things can give you new motivation and the next go can be the one that does turn out to be a profitable business.
I am 52 and been threw it and know so well it not so easy to feel like you are throwing the towel in when you are younger and passionate about your first idea/company. Luckily in my 30 years or so I can’t remember times like this when there is so much uncertainty.
One thing I do know my current business we have scaled back growth plans and new employees and are looking to just consolidate and keep heads above water next 6 to 9 months and hope we come out the other side fit and well. We are lucky in one way that the 4 founders have self funded and have enough capital behind them to get through a while with the 4 of us and one employee so our cash outflow is manageable. Very pleased we did not get a payroll of 5 to 6 that we were planning in Q1 and delayed as we had seen signs of this virus and possible impact as I am based in Hong Kong and it hit here early Jan

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Good luck with the current business Paul, and a gooner salute from Scotland

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I think there is a massive difference in trying to do something so disruptive ( and I hate that word) like Amazon and the companies that are doing app, websites etc and think they have a niche. The number of companies that have raised a decent amount when their only “secret sauce” is they have a few APIs and are consolidators or resellers of someone else’s inventory that have another few hundred sites doing same with same inventory staggers me.
They report gross sales as revenue when they take 1 to 5% in comms only and have fixed costs that burn through cash and cash break even is miles away and if they were honest not possible due to the very low barriers of entry. A lot of money has been invested in start ups doing this where the money has just lined FB and Google’s pockets with Ads.
When consumer spending is going to plummet those type of companies in my mind should shut shop and return any cash they have to investors

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from Jamie Catherwood’s Investor Amnesia Sunday Reads.

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FT:

Britain’s start-up companies are set to receive financial support from the government after top investors warned that many are at risk of collapse amid the coronavirus crisis.

Some start-ups, particularly those at the earliest stage of development, are lossmaking — and therefore not eligible for a new government-backed loan scheme for small companies.

But ministers are keen on ensuring that Britain’s most innovative businesses survive the crisis, and the Treasury is considering proposals about how best to support start-ups, according to officials and investors.
One model of support being discussed for start-ups would see the government offer convertible loans, which could either be repaid by the businesses after the crisis or turned into equity stakes owned by the state.

The model could require co-investment, whereby venture capital backers match whatever funds are invested by the government, partly to ensure only well-supported start-ups come forward for help, but also to circumvent EU state aid rules that could prevent simple cash injections.

The government has already indicated it could invest in large companies, such as airlines, as a last resort. Ministers want do this on a case-by-case basis — rather than the state rescue entire industries — and only after companies have first sought fresh capital from their investors.

Officials are also looking at whether additional grant funding to start-ups could be provided through InnovateUK, a government body providing support to innovative businesses, said one person with knowledge of the situation.

Officials are also examining whether tax credits could be further extended in areas such as research and development.

While chancellor Rishi Sunak is understood to be sympathetic to start-ups, no decision has been made on the final shape of any government support.

But the scale of any government intervention is expected to be far more modest than Mr Sunak’s new schemes designed to support small, medium and large companies and their workers.

Start-ups are often backed by investment funds with deep pockets, and have been a lower priority for ministers compared with sectors such as retail and hospitality, where hundreds of thousands of jobs are on the line.

Any government scheme for start-ups would probably be administered by the state-backed British Business Bank, which is already one of the largest domestic investors in venture capital funds in the UK.

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R and D is a good scheme but the timing just doesn’t work. You spend the money , then at year end submit accounts and tax return and then wait for approval which is probably 2 to 6 months so you are looking at a rebate in region 2 to 18 months after spending the cash. For early stage its a huge impact on working capital , a quicker turnaround would be very beneficial. What I have seen is that some companies have been lend money secured on the R and D tax credit by funders who have expertise in this area. This suggests to me the scheme is way too complex and others are making money on knowing the secret sauce to get credits back so a consultant takes a carry on the loan and a decent % of the refund . That can’t be how it should work.
I now have a company in Canada with my partners and its very different. The 4 founders are me (UK but live in HK, two Canadians and a Yank). We are in working on tech dev for blockchain and related solutions and have been backed by a Govt scheme where we get approx 80% rebate on dev salaries which is reimbursed around the 20th of the month after paying the employees AND paying the PAYE/NI equivalent. If we don’t pay the taxes we don’t get the rebate so also a good test of solvency. A few rules, IP needs to stay in Canada etc but it means we can leverage funding for devs etc at about 5x which has a major impact on what we can do for money raised. You can even get about 60% rebate on outsourced dev work. The cash flow difference to the UK scheme is huge and in the UK today we would be dead in the water while in Canada we are looking OK and the runway is good giving we only have to fund out or working capital for about 20 days of dev salaries.
I did find out this morning on our call that with the rona that the Govt are now looking to advance 3 months up front as well as special measure and that will be paid by 20th of month. It takes off huge pressure and menas we can concentrate on strategy, redefining product as result of recent changes etc without panicing about layoffs and being out of cash in a few weeks

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Anyone interested this is the Canadian Department Support for technology innovation - National Research Council Canada Some great incentives and schemes and if you do happend to have businesses in Canada make sure they are taking the opportunities offered. If you have a sensible business plan and idea they will back you , they will even pay a small grant to tidy up the business plan to get the next stage funding

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New startups have a great chance

Heard this idea before, backed by statistical data. Those that started at or around or just after 2008 and survived had a greater chance of doing well, provided their ideas and execution were solid and the funding was there (luck).

  • “If you can get yourself in front of a great idea and inspired and hopefully venture funded … this is the greatest time to start a company,” Max Levchin said.
  • For companies in the middle part of the growth cycle, the situation is tougher, Levchin said.
  • A wave of layoffs has already hit the tech world, with start-ups cutting nearly 4,000 jobs in March.

Paypal and Affirm co-founder Max Levchin said Thursday that the stage a start-up is in is a major factor in whether the company will survive the economic downturn.

“It’s really stratified. I think this is the very best time to be either a late-stage, well-funded start-up, because the competition is thinner … [or] even better perhaps, this is the time to hunker down, go 10,000 feet below ground and build something truly amazing,” Levchin said on “Closing Bell.”

For companies in the middle part of the growth cycle, the situation is tougher, Levchin said. A wave of layoffs has already hit the tech world, with start-ups cutting nearly 4,000 jobs in March.

“It’s the mid-markets, or the series B unprofitable start-ups, where every investor has to make a decision — ‘Do I keep throwing good money after bad or do I back out?’ — so I think that’s where the situation is the toughest,” Levchin said.

The entrepreneur said the economic slowdown has created a big opportunity for people with great ideas.

“You can be sure that not that many people are dreaming huge because so many are just trying to survive. And so if you can get yourself in front of a great idea and inspired and hopefully venture funded … this is the greatest time to start a company,” he said.

Levchin did say that Affirm, his current company, which helps consumers finance large purchases, was seeing that midmarket e-commerce start-ups were experiencing a lot of demand during the crisis but smaller companies were struggling.

Affirm announced a series F round last year that raised $300 million. That brought the total equity raised by the company to more than $800 million.

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Thanks @engineer this is useful . I also had a dig back in my old files and found some stuff that Sequioa were punting around in the last crisis that i think are still very relevant along similar lines

solution
solution1156×856 79.1 KB
vc
vc1300×757 116 KB
perserve capital
perserve capital1292×821 65.7 KB

If anyone is interested, its quite a long overall doc and quite US focused and very focused on the reasons and impact of last crisis , its at this link RIPGood Times

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