With startups shifting to survival mode as the coronavirus uncertainty grows, German Accelerator mentor Dr. Sian Wee Tan addresses questions from our startups around fundraising, business continuity plans and key risk mitigation strategies. Dr. Sian is Co-Founder and Executive Director of Finaxar (a Monk’s Hill Ventures portfolio company that is reinventing business financing for small-and-medium enterprises) and Operating Advisor at Monk’s Hill Ventures (a partnership of seasoned entrepreneurs who have built and backed global companies based both in Silicon Valley and Asia).
For those who are in fundraising mode right now and in Series A working with professional investors, investors will want to see you build a strong case for continuity and survival That means prioritizing your business activities, getting the revenues in, and reducing your burn rate. You will need to go back to the drawing board to plan your cash runway to last for the next 6 to 12 months. I foresee the current economic slowdown to last a lot longer than people think, especially if you are dealing in the U.S. and European markets.
Fundraising for equity now will be tough unless your traction continues to grow. If you fundraise for equity now, you need to have demonstrable traction during these tough times. Investors themselves are not in a stable situation right now. Venture capitalists rely on capital from investors which is drawn at certain times across the year. However, investors will have trouble drawing funds from LPs (Limited Partners) as some of these institutions may invoke a clause in their contract and decide not to put any more funds into the portfolio companies. Unfortunately, I’ve witnessed situations like this happening during the 2008 financial crisis, and predict this could happen again.
What you can do is to go with the funds that have long-lasting power – these are the ones who have raised not one or two funds, but several so they have the longest and most stable relationships with limited partners worldwide.
First of all, take care of your people. If you don’t have your people, you don’t have a business. Your employees are naturally nervous about the current situation, so provide them the assurance they need by taking quick decisive action, both for the company as well as for their well-being. They need guidance and decisiveness now for their personal protection and the maintenance of your business.
Institute a Business Continuity Plan (BCP) immediately with reporting chains of commands and fallback options. Don’t wait! Speak with your lawyers or seek a lawyer’s expertise. If you don’t have one to put one in place with templates that are compliant with the local laws of the country you are operating from. Investors will also want to see how you adapt and keep your business resilient and cope during times of crisis.
Protect your revenue to the extent that you can. Cash is king. You have to think fast and consider selling goods or services which are in demand for the market right now. If you rent offices, exercise that Force Majeure clause and don’t pay rent when you can since your employees are working remotely. This will reduce your burn quite substantially.
Starting from the top, list out the emergency contacts. This basically consists of the top two personnel that have executive authority within the company. Secondly, state the company policy and procedures which will safeguard your employees’ lives and your firm’s properties in response to a significant business disruption. This plan will also cover financial and operational assessments so as to recover operations when the disruption happens, and allow your customers to resume transactions or to be informed.
Within the company policy, there is a definition of internal disruption such as a fire in the building or an external disruption which is what we are facing now with the coronavirus outbreak. Mark out the approval and execution authority so it will be clear who will trigger the BCP. The procedural portion includes planned location access wherever your offices are located, including data backup and recovery options be it an external service provider or your own servers. Ensure your employees can access them either from alternate locations or remotely from home.
Another important step to do internally is to carry out an operational assessment of your business. This will help you think through exactly what is needed to support your daily business and operational activities, as well as still take on new business. There are various components to it including technology, knowledge transfer, and the operational aspects:
How the virus has and will impact startups is likely to depend on what sector they are in. Certain industries are being badly hit but sectors like e-commerce marketplaces, delivery businesses, and health tech addressing issues arising from the coronavirus outbreak are seeing benefit and traction.
While food deliveries are skyrocketing, delivery companies now need to find more drivers to manage the demand. Credit for small businesses will be badly hit since banks will hold back, so the other potential opportunity I see is in credit financing for smaller B2C and B2B companies if you can manage your credit and losses properly. We are also financing a few clinics for their cash flow but with a higher number of claims now, insurers are taking a longer time to pay them and this becomes an issue as clinics need to wait longer for payment.
My advice is to look through the value chains affected directly by the coronavirus and see how you can provide solutions fast enough that will solve their problems. If you analyze these gaps to fill, you are able to identify opportunities your business model can pivot to be successful under changing circumstances.
Internationalization does not happen overnight, so you should keep considering it in your mid to long term plans. There are some aspects of internationalization which you can still work on such as setting up subsidiaries in new countries like in Singapore or the U.S. and getting the accounting systems set-up first. For businesses that can operate in a virtual reality environment and in a longer sales cycle, this could be less of an issue but the ones in the fast-moving consumer goods sector would be more affected by the coronavirus repercussions, unless you already have the operations set up in the country.
Dr. Sian Wee Tan is a co-founder and Executive Director of Finaxar, an Operating Advisor at Monk’s Hill Ventures, as well as one of 300 mentors in the international German Accelerator network. Sian was an early investor and pioneer of touch feedback for Immersion (NASDAQ: IMMR) with 10 patents. Immersion’s technology is today felt through over 3 billion game controllers, automotive, medical, mobile, and peripheral systems. He later advised Primesense at start-up, which became Face ID for Apple in 2017 after Primesense was acquired. Later, he collaborated with the German Aerospace Center to commercialize advanced thermal storage solutions. Sian holds a BSc. in Mathematics and Physics from the University of Bristol and an M.S. and a Ph.D. in Mechanical Engineering from Stanford University.