How to Cope with Covid19 Market Meltdown
Patricia Poon, Founder & Managing Partner, Belmond Capital Limited
I was halfway through writing an article about some common pitfalls shared by first time business to business tech founders including ‘falling in love’ with co-founder(s),confusing different types of proof of concept, wastingmoney on expensive sales overheadsbefore product market fit, mismatchinggo-to-market and scale up targets, and assuming product market fit with a path to profitability,makes you agood investment target.
Then Covid19 cases begin to increase sharply and widely outside of Asia with Italy putting its rich northern regions into lockdown. Oil prices plunge as Saudi Arabia launches a price war after OPEC deal failure. Global stock markets tumble andthe 10-year Treasury yield touches new record low on a daily basis. Travel restrictions, social distancing and quarantine directives make it ever more difficult for start-ups to raise funds or close deals.
But it is not all gloom and doom. I had a very interesting discussion with one of our portfolio companies which has just managed to close an over-subscribed round. I thought I would talk about the common pitfalls another time and focus on how and why well-funded pre-Series A start-ups should adopt a more aggressive approach in these challenging times.
Accelerate your product iteration velocities by recruiting engineers and coders from less well-funded start-ups without up-pricing
When markets are volatile and unsettled, we have a natural tendency to be more conservative in hiring and cashflow management. But if you have just closed a round and have 18-24 months of runway ahead of you, it is time to hire a few more tech talents from start-ups which are facing financing problems.
Talk to your CTO, come up with an accelerated product development and hiring plan and go get the simulation AND the algorithm engineers that would be happy to join a winning and well-funded start-up without getting a big salary increase.
If a VC is willing to give you a big check, don’t hesitate or worry about further dilution, take the money now
While I am not normally a big fan of ‘over-raising’ with founders potentially getting diluted below 35 percent post Series A, if a VC wants to give you a big check on the same terms even though your round has just closed, do not think twice. Take the money as a buffer for your runway and ammunition to achieve accelerated product iterations.
Tap into the business nous of your investors and bring forward the development of an expansion blueprint
Travel restrictions and event cancellations mean your investors will have a less charged diary. Send them short messages or jump on a series of short calls to pick their brains on every detail of a business expansion blueprint that you need to know but you are not probably aware of. Use this time to think and develop action plans for your next big move.
Accelerate your product iteration velocities by recruiting engineers and coders from less well-funded start-ups without up-pricing
Raise your leadership game, set the bar higher for your entire team You, your co-founders, and your entire team have to aim higher and have bolder, more ambitious goals in terms of faster product iterations. Now it is the time to sprint and leave your less well funded competition in the dust.
The pressure (not the same as stress) is on to deliver. And as they say, pressure is a privilege.
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