Tips on how to navigate the current crisis.

As this is being written, markets are in a blue funk from the global coronavirus epidemic. US markets are not yet open, but a black and bloody Monday is already on the cards. Bitcoin is down nearly 9% to $8,000, crude oil at one point crashed over 30% to $28, and S&P500 futures have lost nearly 5% to 2,817. Global markets are in crisis mode.

Tech startups will now have to confront a new reality stemming from the coronavirus and its black swan impact. A venture environment without the tailwinds from ebullient financial markets.

Unfortunately, tech startups were already in somewhat muddied waters – worms were coming out of the woodwork at startups bankrolled by SoftBank such as WeWork, OYO, Zume, Rappi, and Fair. (VentureBeat)

Tech startups had taken for granted that VC moneybags, with billions of dollars of dry powder burning a hole through their pockets, would gratefully swallow their hype and fund their plans. Growth, not profit, had become the funding mantra.

Crisis time: Tech startups may face their reckoning

The music may have stopped.

We are perhaps on the cusp of a prolonged slowdown, and startups will find it much harder to raise funds.

As Warren Buffett says: “Only when the tide goes out do you discover who’s been swimming naked.”

And so it is that 2020 may be a year of reckoning for tech startups.

Those that want to make it through the crisis may have tread carefully.

Crisis tips

Greedy startups who passed up fundraising opportunities in 2019 in the hope of commanding better valuations may now regret their decision. Existing investors, and possible referrals, maybe their sole hope.

Now the most important objective is to stretch out the cash runway. So no irrelevant hiring, swanky offices and avoidable expenditure.

Important customers become even more important. A decision to delay or cancel a purchase could be disastrous for the tech startup. So it is better to bring these customers on board, discuss product development plans and get clarity on purchasing plans.

Moreover, regardless of the difficult situation, the startup should not lose its focus on developing itself and its product to match customer expectations.

And profitability is dear to everyone. “Portfolio companies are now expected to share higher revenues, higher margins, faster paybacks and more control over their own destiny than before,” says TJ Nahigian, co-founder of Base10 Partners and a former investor at Accel.

Finally, as always in crises, leadership makes the ultimate difference between startups that survive and those that flounder. Only honest, dedicated leadership that walks the talk will count.

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