2 min read
A Three-Step Survival Guide for the Post COVID-19 World
Almost 135,000 tech workers have been laid off from major tech cavompanies in Silicon Valley and elsewhere. A little more than ago, our portfolio companies, like many other small start-ups, were struggling to get the talents they needed since the FANGs and aspiring FANGS were easily offering 2x salaries and cushy benefits, as well as the opportunity to work on some cutting-edge technologies.
We all know what has happened in the past six months — Google, Twitter, Meta, and Amazon are just the most notable examples (Amazon reportedly is even considering if the Alexa project, with 10,000 employees in it, should stay or not). Google employees are getting nervous about new performance requirements.
This is all excellent news for early-stage startups. To be sure, it is not a case of Schadenfreude. We all need to have the bellwethers of technology, especially such major ecosystems as Google, Apple, and Amazon, to be strong and to continue to innovate, as they have the deepest budgets and strong know-how. It is, however, a very fortuitous situation, and our recommendation for the start-up is to take advantage of this opportunity.
There is also a parallel pattern in the funding environment, though not as strong. Not only has the valuation of the late-stage companies come down a lot more (50% or more compared to about 20% or so for early-stage), but the appetite of investors is greatly diminished for the late-stage companies in general. Early-stage is a different story since they have three to seven years to prove themselves, and by that time, the current turmoil in the capital market has likely subsided, or we may even have another IPO boom.
All of this tells me that early-stage startups should not heed the call to cut back all costs but rather be prudent and try to take advantage of these trends to strengthen their position and talent pool.
Almost 135,000 tea
It is always easier to rapidly expand hiring and expanses than to cut back, so in case we have a faster recovery, you will still be able to catch up.
2. Focus on profitability. We still don’t know what shape the economy will take in the next 2–5 years. Economists and analysts alike are in the dark since we haven’t had a situation like the current one where both supply and demand are suddenly disrupted, with unknown long-term consequences for growth.
As such, in general, profitability should take priority over growth. The healthy companies that can go back to the market and raise money will be the ones that have positive unit economics and margins and need money for growth. Investors will not penalize you if you show only modest growth in the next 12 months while you manage profitability and margins.
3. Plan for the new world order. We believe this pandemic will cause permanent and fundamental shifts in work and spending patterns, and in the economy in general. These changes will go far beyond working from home and video conferencing. Among the patterns to consider are three areas. First, in the near term be ready for longer sales cycles, difficult SMB market, and lower pricing demands from your customers.
Second, increasing automation and robotics will be in demand, as companies cut back on payroll and other expenses to match the lower demands. Third, long term trends will kick in that will benefit digital health care, next wave of video conferencing and collaboration, virtual services (e.g. video-based physical training), and flexible and rapid resource re-allocation: companies will be planning for next disaster with far more contingency plans they had considered before. This will be a big market opportunity.
We will outline in more detail the market and investment opportunities in the post COVID-19 world in a coming piece soon.
Stay safe and strong.
ch workers have been laid off from major tech cavompanies in Silicon Valley and elsewhere. A little more than ago, our portfolio companies, like many other small start-ups, were struggling to get the talents they needed since the FANGs and aspiring FANGS were easily offering 2x salaries and cushy benefits, as well as the opportunity to work on some cutting-edge technologies.
We all know what has happened in the past six months — Google, Twitter, Meta, and Amazon are just the most notable examples (Amazon reportedly is even considering if the Alexa project, with 10,000 employees in it, should stay or not). Google employees are getting nervous about new performance requirements.
This is all excellent news for early-stage startups. To be sure, it is not a case of Schadenfreude. We all need to have the bellwethers of technology, especially such major ecosystems as Google, Apple, and Amazon, to be strong and to continue to innovate, as they have the deepest budgets and strong know-how. It is, however, a very fortuitous situation, and our recommendation for the start-up is to take advantage of this opportunity.
There is also a parallel pattern in the funding environment, though not as strong. Not only has the valuation of the late-stage companies come down a lot more (50% or more compared to about 20% or so for early-stage), but the appetite of investors is greatly diminished for the late-stage companies in general. Early-stage is a different story since they have three to seven years to prove themselves, and by that time, the current turmoil in the capital market has likely subsided, or we may even have another IPO boom.
All of this tells me that early-stage startups should not heed the call to cut back all costs but rather be prudent and try to take advantage of these trends to strengthen their position and talent pool.
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