Editor's note: The following is a guest post submitted from a member of the Atlanta tech community. Interested in submitting a guest post? Email mhogan@americaninno.com.
The smooth sailing the entrepreneurial community has enjoyed for nearly a decade sandbarred suddenly with the devastating arrival of the coronavirus, tossing everyone on board into the proverbial sea to sink or swim on their own.
Founders have been told to cut back, hunker down and put on their life preservers. The Thurston Howell’s of the group, the money people, have pulled back, watching their primary portfolio --- the stock market --- bob up and down, mostly down, causing term sheets to be pulled, money to be tight and leaving all fundraising adrift amidst violent waters.
So how are we as players in this fragile ecosystem --- the wide-eye founder and the crusty ol' investor --- supposed to make heads or tails of this storm that has engulfed us while we scramble to get water out of the boat, row hard to shore and try to keep our heads up as the reality of this new dawn hits us like a bullseye? No, unfortunately for all of us, this is not a bad dream.
First, we must recognize that this is not all about us. We must thank our health care workers, our first responders and our scientists and medical researchers. We must pray for, comfort and support the families of those who have lost loved ones or are sick, and do our part to stay home and not make matters worse. We must give where we can and use whatever expertise we have to be part of the solution.
Second, founders must immediately shift gears into emergency mode, putting those plans in place for when the weather turns dark, lead by example and suddenly become experts on the new, just approved federal stimulus policy. More importantly, founders must become great communicators, even if they have to share bad news. It is how we deal with our employees at this stage that matters most. Be honest, transparent and empathetic.
If you are running out of cash, be creative and use your cap table to incentify people. That is the one thing that you do control when all else is gone. Use it. Make your key employees fellow owners in your business. They will never forget what you have done for them and when you come out of the other side, your success will be that much sweeter. It is not how much of a company that you own, but the value of each share that you have. Be generous.
Third, and this is for angel investors, now is the time for us to show true grit. Don’t be afraid and don’t do as one angel investor I know did last week: he pulled a signed term sheet negotiated over four months and left the company that he wanted to be chairman of high and dry. There has to be a better way.
Simply put, this dance between founders and investors needs to move faster now, with shorter steps in-between. Perhaps make a smaller investment than perhaps you planned pre-COVID, but stay in the game. Perhaps ask founders to go back to an earlier financing round and open up those terms. If need be, support companies that you have already invested in rather than new positions. But don’t cut and run like what happened in the example above.
Based on my Chairman Partners’s portfolio companies, I see founders scrambling like crazy, focused either on newfound opportunities created by the COVID crisis (two are in the telehealth sector) or pivoting some of their models to create service revenue work to keep the cash flowing.
Seed investors need to adjust to the heightened pace of startupdom. Due diligence cannot take months and months. Convertible notes now make much more sense than priced rounds. Put investment money to work faster. Be your own microcosm of what the business community is asking the federal government to do; get money into people’s hands now. We as angels need to do the same for our companies.
New company formation and angel investing is inherently long term in nature. Creating new jobs, new companies, new solutions --- some that might even help us address or avert future pandemics or crises --- is noble work. History tells us some of the best companies are created in the most difficult days. As individual cities and as a nation, let’s show that we are building rock-solid epicenters of innovation and growth, not just pretenders showing up when things are great. So as long as everybody in the ecosystem continues to do their part, we can say that America’s startup communities are open for business, today and every day going forward.
