With all the punditry about the state of venture capital and VC-backed companies in the era of COVID-19, there are a couple of refrains that strike a chord:
‘Not sure how long this will last. Brace yourself, take shelter’
‘Never let a crisis go to waste’
We take heed to both, and it is represented in the steps we are taking. Early stage venture-backed companies are culturally modeled and financially geared for high growth, often with high burn. In the current environment, resilience and solvency are paramount.
Our message to portfolio companies’ CEOs has been simple:
· Not sure how long this will all last. The key is liquidity and having the financial staying power to be around when this is behind us.
· Actively communicate with your teams, take shared responsibility as a leadership team, and manage your personal stress.
· REDUCE BURN, INCREASE CASH-ON-HAND. And, it is OK to over-react!
A key concern is customers terminating contracts. Our advice? Protect the churn. We are on watch for this, though most of what we are seeing is delays or pauses on new activity. Strategies to consider in this environment include offering more favorable payment terms, incentives for renewals, and focusing new sales efforts on up-sell opportunities rather than cold / new ones.
On the capital and fundraising side, we’ve seen and are hearing about a range of situations. We are familiar with one case where a lead investor pulled out of an in-flight round. We are also familiar with situations in which investor commitments have been pared back. Several portfolio companies have secured government loans to shore-up liquidity. However, most in-flight raises have stayed the course and investors have kept their commitments.
Some of the best companies in the world have been created in times of crises.
While we are aware of investors that have paused new investments, SixThirty continues to diligence in-flight deals and build a pipeline of prospective investments.
This is an unprecedented time in history, and we will not know the full extent of the pandemic’s impact for quite some time. In the interim, SixThirty remains vigilant and committed to our responsibilities to manage the portfolio of investments and judiciously seek new investments as appropriate.