Let´s save the Startups!

Let´s save the Startups! 

The Coronavirus has affected a big part of the business world, but specially small businesses that continue struggling every day to keep afloat and prevent their business from sinking. 

In our business insurance sector, we believe that after the end of the crisis, companies will be more aware of the risks and uncertainties that can be prevented by hithehrto unpopular insurance categories. Insurances of loss of profit due to having closed a business. Cyber security insurances, for having several employees teleworking from home with unsafe Wi-Fi´s. Many of these opportunities will be captured by companies such as CoverWallet that will use technology and data to develop new insurances in an agile way, but also by companies like Aon, with strengthknowledgereputation and scale in understanding customer needs. That´s why CoverWallet and Aon marriage is more relevant today than ever before.  

For the rest of technology startups in Valencia, Spain or the world, the medium-term future is highly uncertain. Startups usually attack large markets with an innovative proposal. But they need a lot of investment in the first years of life, being at a los until profitability is reached years later, if the startup is succesful. And to reach that point, external financing is sough. 

In almost all sectors, incomes will decrease (although there are exceptions such as videoconferencing companies, online course portals, home-delivered meals, home gym equipment and streaming classes or TV platforms). Even if you haven´t seen an impact on your revenues yet, assume that your customers will rethink their spending as well. So if expenses remain the same and revenues drop, monthly losses will be higher and therefore, the cash Flow will run out much faster (lower runway). Also, imagine having to go to finance yourself as a “high growth startup” with a business plan where the income goes in the opposite direction. The founders are going to have to make difficult decisions to extend the life of the box, taking into account the existing scenario (building hypotheses about its duration and possible deterioration), and not the scenario we would like it to be. You go to war with the army you have, not with the one you would like to have. We must safeguard the employees, but also the viability of the startup. Acting fast is leadership. Acting late is an act of despair. 

Investors in this scenario are also going to be much more selective and postpone decisions. And in an environment where you can’t even travel to meet teams in person to do the typical due-diligence, many investment decisions are going to be delayed by several months, with a “wait and see” strategy. It should also be remembered that investors, both funds and business angels, may have lost liquidity due to the stock market decline, so the scenario is even bleaker. Against this backdrop, founders and leaders of startups will have to be cautious, far-sighted, practical and realistic. It is necessary to build optionality. And to do this, difficult decisions have to be made, without having all the information. 

But this is also what leadership is all about. We would all like to see a V-shaped recovery but no one can predict that because we have never faced a similar crisis before. The time until the virus is contained is one thing, but the duration and magnitude of the associated economic crisis is another. Therefore, it is better to err on the side of caution, even if it is difficult to get back on track, than to bet that all this will only last a couple of months and it is better not to lose our inertia. Some recommendations: rethink contracts that do not contribute to income in the short term (even if you find the best engineer at half price); evaluate and reduce expenses such as happy hours, drinks in the office (only water) or travel; renegotiate all contracts to the new reality (rent, IT, services, etc); reduce marketing investment unless you have an immediate positive return; cancel or delay bonuses if offered; put the business plan with the most pessimistic revenue scenarios on paper and share them with the team; assume that it will take you longer to get funding so focus on extending the duration of the box to at least 12 months; and finally, be proactive and make the hard decisions as soon as you can, with clear and empathetic communication with the team. 

France launches a €4 billion support plan for start-ups 

PARIS (Reuters) – France will launch a €4 billion ($4,33 billion) liquidity support plan for start-ups following the coronavirus outbreak, deputy minister Cédric O. said Wednesday. 

Investment in early-stage digital companies has increased in France in recent years, helped by tax cuts and business-friendly measures launched by President Emmanuel Macron, who has promised to turn the country into an “emerging nation”. 

“We are announcing a specific plan to support the liquidity of new businesses,” Cédric O told French radio station Radio Classique. “In total, it will be a €4 billion plan.” 

Money injected by venture capital funds into French start-ups jumped 30% in the first three quarters of 2019 over the previous year to €3.9 billion, according to Dealroom, a data provider. 

The French government’s liquidity plan for start-ups includes a short-term refinancing plan (€160 million), advance payment of some tax credits (€1.5 billion), accelerated payment of already planned investments in the sector (€250 million) and guarantees on cash flow costs (€2 billion). 

“Given the global economic situation, there is a risk that some investors will become cautious,” said Cédric O, adding that he will meet with some venture capital funds this week in an attempt to strengthen his support for French start-ups. 

This crisis will also be overcome, sooner or later, because what is happening, “It is happening”. For startups that manage to survive this Darwinian process thanks to the leadership, pragmatism and focus of their founders and leaders, the future looks more optimistic. In the medium term there will be fewer competitors and more talent available for hire. In all the previous crises, new leading companies have emerged that were able to survive by making difficult decisions. In the last one, companies like AirBnB, Square, Uber, Instagram or Whatsapp were created. I also founded Pixable, my first successful company, in NY in autumn 2008. Limitations sometimes help to put focus and alignment on what is important (“the important thing is that the most important thing continues to be the most important thing”) and encourage creativity. In the near future, we will see many startups become global leaders who knew how to weather this crisis by being proactive. 

Sources: Levante, Reuters, Business.gov.nl 

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