The aftermath of the pandemic spread of the Covid-19 virus has hit financial markets where it hurts the most – their ability to bank on the future.
These are unprecedented times as countries close their borders, the Italian government shuts down businesses, and schools, colleges, and universities are shutting their campuses and moving classes online. The disruption in business and how it will get conducted in the near term has created a tectonic shift that is rattling global markets.
When the most capitalized financial market in the world starts oscillating like a 5-year-old getting on a swing for the first time – it is time to sit-up and take notice.
Even we felt the tremors far away, i.e., in the venture capital ecosystem. Sequoia’s calling Covid-19 spread The Black Swan of 2020. This spread is dangerous, and the situation could spiral out of control – quickly.
Therefore earlier this week, Vinod and I had organized a conference call with Artha Venture Fund’s founders to address this growing situation and to work out how we could get ahead of the problem. Here is a brief synopsis of how our founders are tackling this issue (thank you, Arvind, for these notes):
- Do not panic but stay vigilant
- Keep an eye out for a demand drop in the next 3-6 months
- Respond to it quickly and decisively
- Remember that a typical downcycle in VC lasts for 18-24 months
- Survive this period, and you will thrive when the tide is back
- Investors are tightening their belts
- Be prepared for long delays in fundraising
- Drop-off in valuations
- Prepare fresh budgets
- Be conservative in revenue estimates
- Cut unnecessary & discretionary spends
- Find ways to control the burn, i.e., increase revenues or cut the costs
- Despite your best efforts if you envision run out of money in the next 6-9 months, then
- Raise an additional buffer right away and extend your runway to 15-18 months
As an optimist contrarian, an economic upheaval offers the best opportunity to gain on the competition. One must remember that people will continue to consume goods and services, but the way they consume it is going to change – temporarily.
A founder must watch the customer’s consumption patterns closely, prepare to pivot the business to serve his customer base, and capitalize – even in these adverse business scenarios.A note: I do not attempt (in any way) to disregard the seriousness of this virus. The severest impact of this is on the part of the population that has pre-existing medical conditions. To me, it means that entrepreneurs are in the higher risk category due to entrepreneurial stress they undergo (I have written about in the past). The recent turmoil is just adding to that stress. Therefore stay calm, stay positive, keep your ears close to the ground but keep your hands clean and off your face.