Startup valuations will probably drop significantly.
A lot of venture capitalists will be reluctant to make first-time investments with founders they haven't had a chance to hang out with -- but some will still meet you in a parking lot from a safe distance.
And, for entrepreneurs who believe they can weather these difficult times, it's going to be critical to hang on to as many customers as you can.
Those were three themes that emerged in a virtual panel discussion organized by Austin VC firm Silverton Partners at the end of last week.
The conversation was part of our new world of teleconferences and quickly-arranged discussions on how to manage through a crisis, as founders scramble to find knowledge and insights into how to approach the coming days, weeks and months.
"Farming is a lot easier than hunting."
Startups may want to assume they'll only hit 50% of their goals, as well as consider renegotiating real estate leases and other payables to trim costs, said Mike Dodd, a general partner at Silverton Partners who has been a tech investor for about 20 years. Meanwhile, he urged founders to be transparent about layoffs and over communicate with employees and investors, and to make any necessary cost cuts sooner rather than later.
“It’s a tough thing to swallow. It’s no fun," he said. "These are really hard times for everybody.”
Startups need to do everything they can to extend their runways, knowing it could be nine months or a year of major disruption.
“Get lean, stay lean," he said.
A series of small cuts might feel more attractive, but Dodd and other panelists agreed that one well-thought-out adjustment is better than going through several rounds of cutbacks.
"There's no sense in trying to sugarcoat it," said Evan Kastner, an attorney and co-founder of law firm Kastner Gravelle LLP.
Kastner said he's sat in on several recent board meetings and tends to see two approaches: One where the conversation devolves into sandbagging and lowering expectations -- and another where founders are energized about finding new opportunities.
“When everybody is out there holed up there in their houses getting stir crazy, there are great things out there around the corner," he said. "It’s not the time to make excuses and bury yourself.”
Many startups will have to make subtle business pivots, the panelists said. But, beware: If you repurpose your company entirely, it might make getting back on track post-pandemic even more difficult.
“I’m finding some startups that are doing crazy unnatural things," said Gordon Daugherty, a co-founder, mentor and investor at Capital Factory.
He said that if your startup was already struggling and you don't see a clear path through the crisis, there's no shame is shutting it down or going back into bootstrapping mode by taking on contract work.
"If you need to revert back to a partial or majority services business, don't be embarrassed to do that," he said. "Swallow your pride and do whatever it takes to keep the mission going."
All of the panelists agreed with the general sentiment that raising money is getting a lot more difficult. But they said VCs are still deploying money, especially in follow-on rounds with founders they've already gotten to know.
"Fundraising is definitely changing," Dodd said. At Silverton, he said the team has been discussing whether they could make an investment decision without physically meeting a founder.
"To be honest, we don't have an answer yet," he said.
But, he said that investors will become more comfortable with virtual handshakes. And he said that he has already met with founders in open parking lots where they can sit in lawn chairs and maintain a safe distance.
“I’m absolutely open to meeting folks outside and face-to-face. It’s controversial and I get that," he said. "But it never hurts to ask if you’re willing to do that.”
Meanwhile, all the panelists agreed that startups have to focus on retaining the customers they already have.
“Farming is a lot easier than hunting," Daugherty said.
“Give extra, extra love to your customers,” Dodd said.
And never stop innovating and learning -- some of the best companies are born out of downturns, the panelists said.
“It totally sucks right now, but you will gain many things out of it," Daugherty said.
