With the local and U.S. economy already reeling from the progression of the coronavirus outbreak into a full-scale global pandemic that's forcing thousands of businesses to dramatically augment or even suspend operations, everyone is looking for answers.
This is a fast-moving story, and almost everyone's insights and opinions on how to best navigate the unknown terrain ahead will change as we learn more. With that said, Inno has gathered some of the early insights from local accelerators and venture capital firms to see some of the general advice being floated.
We'll start with Gordon Daugherty, co-founder and president of Capital Factory. In addition to his high-profile role at Capital Factory, Daugherty has worked at big tech companies including IBM and Compaq, as well as serving as an advisor or board member for dozens of local startups and founders. He also recently published a book -- "Startup Success: Funding the Early Stages of Your Venture."
Daugherty shared his personal insights on his blog on Sunday. Here's a snippet:
"The immediate impact to startups will be a slowdown and delay in funding activity while investors of most types try to decide for themselves how much worse things will get and how long the situation might last. The slowdown will also occur simply due to the increased difficulty of travel and recommended social distancing. Videoconferencing only goes so far when it comes to investor interactions," he wrote.
Daugherty also said angel investors and family offices will likely be more conservative, but will probably return to their normal investment pace shortly after the crisis is over.
"That’s because a fund manager for a traditional 10-year fund needs to deploy their LP’s capital within the first ~3 years of the fund to optimize their IRR and other key fund performance metrics. They can’t just sit on the sidelines for a year," he wrote. "The question is whether they’ll prioritize the use of their capital to help companies they invested in from their prior fund(s), thereby protecting their portfolio and potentially investing at a good valuation for the benefit of the LP’s in their current fund."
Sputnik ATX Managing Partner and CEO Oksana Malysheva also shared her insights in an email with Austin Inno on Friday. In addition to leading Sputnik, she is a physicist and venture capitalist.
Here's her quick take:
- Lock down the funding that you do have.
- Although it may fee like it, the world is not ending but rather on pause; the market decline may have spooked investors but know that many still have dry powder.
- A lock down or widespread quarantine could mean that some investors, potential partners or other people you've been trying to reach might have more free time; use that to your advantage and reach out.
- Human empathy will serve you during times of crisis; this includes potential partners and investors. This is a time where everyone has something in common, everyone is going through this together so it could make connecting online easier or at least gives you something to talk about. See how you can serve potential partners and investors, and good things might come down the road later.
- Depending on your company's product or service, this time could present a rare opportunity for growth i.e. if your company offers an online or remote service to customers.
We're still searching for additional insights to share with the community. So if you have insights to share, please let me know at bwistrom@americaninno.com and I might include them in an update to this story.
Meanwhile, Crunchbase News published a story last week with insights from Morgan Flager, general partner of Austin-based Silverton Partners. Here are a couple quick takes from the story:
Flager suggested startups consider taking additional capital if they can. “More runway in this environment could mean the difference between life and death for your business,” Flager told Crunchbase News.
Also, he said it is “prudent to assume that fundraising velocity will slow from the fast pace we’ve seen as investors take time to process the new macroeconomic environment.”
A few more takeaways from other VCs, founders and influencers in Austin and beyond:
“Sequoia Capital sent a letter to its founders on Thursday warning that the coronavirus was a “black swan” event and startups should “brace themselves for turbulence” by considering if they have enough cash and preparing to face supply chain disruptions.”https://t.co/RD8dB5GOVv
— Alex Shahrestani (@AlexsHandle) March 15, 2020
It may turn out that everyone (particularly students) being stuck at home causes net more good startups to be founded. Microsoft and Facebook were both started during Reading Period at Harvard, because that was when the founders had time to work on their own projects.
— Paul Graham (@paulg) March 11, 2020
If you’re in the startup community or broader business community, think about donating money to help your ecosystem whether the coronavirus.
Good on Amazon for their initiative.https://t.co/txGBGqxDCy#Amazon #CoronavirusOutbreak #startups #seattlecovid19
— Joshua (@AlertingMainSt) March 10, 2020
Deals seem to be slowing but it's unclear if that's because of COVID-19. https://t.co/9k7LjH6RHj
— AustinBizJournal (@MyABJ) March 16, 2020
Yes and an unfortunate reminder to all my fellow #entrepreneur and #founders running #startups - public valuations do in fact impact private company valuations....
— mike smerklo (@mikesmerklo) March 16, 2020
Here's our all-hands deck for #CoronavirusOutbreak planning at @Eterneva. We talked health measures & WFH, but more importantly we talked #mindset. We ended the meeting listening to @KingJames' @calm track on Managing Emotions. Feel free to borrow xhttps://t.co/OEjyfXKIzN
— Adelle Archer (@adellearcher) March 16, 2020
New blog post: "Happy Talk versus Hard Talk"https://t.co/HmekHXdrvu
— David Sacks (@DavidSacks) March 15, 2020
Yes and an unfortunate reminder to all my fellow #entrepreneur and #founders running #startups - public valuations do in fact impact private company valuations....
— mike smerklo (@mikesmerklo) March 16, 2020
