Venture & Startup Strategies During a Downturn pt 2

Venture strategies during a market downturn

• secondaries for later stage companies

• investing more in later stage companies in general

• companies that have not raised in the last 12 months - reapproach with lower valuation

  • companies with 2 years of runway will just buckle down

  • hot companies will still be able to raise

• lower valuations/multiples, more deal structure

  • throw out much lower multiples see how they react

• use reserves for portcos

• consider investing in other geographic locations (Europe 50 years behind US and more pessimistic?)

• look for more traction in earlier stages

• look for lower burn / better cash management

• adjust and create the "new norm"



Market downturn effects

• trickle down effect from public to growth to venture in slow down

  • looking for payoff in the high prices paid during a bull run

  • irrespective of how much money funds have raised

• lower capital deployment

• cheap capital gone

• 4 types of funds that find their niches and value adds

  • scale - Sequoia, A16z, Insight

  • non-consensus alpha - First Round, benchmark. Seed specialists

  • late stage generalist - big check writers. Tiger, SilverLake

  • angels / solos - Elad, Naval



things startups should keep in mind

• raise as much as you can NOW if you haven't already

  • down round to stay alive if you must

  • consider funds that invest in venture and growth as capital will be thus available through cycles

  • consider specialist investors with industry specific resources

• consider M&A

  • consider all corporate partners a potential investor

• reduce burn

  • lay off people as needed / cut costs as much as possible

• optimize for profitability if possible

• internet / social media has democratized the playbook of starting a company. of course execution is another story but it was very easy to start a company before. a lot of founders have not seen a down market and it is important to totally adjust your strategy and be humble

• see this as an opportunity! all amazing companies today survived downturns (PYPL, GOOG, AMZN)

  • carefully hire and build

  • differentiation happens in bear markets



Resources

• QED - Three Body Problem: Finding the new stable points in VC

• Sequoia - Adapting to Endure