Volatile Market Notes – Startup Portfolio
I’ve never been good about posting a multipart tweet… When there are more comments on Twitter about layoffs and funding uncertainty than Series A (monster) rounds of funding, it’s time to pay attention. I sent this email to our portfolio companies as a three-minute read.
Portfolio Company Notes – May 6, 2022
As we continue to see public market turbulence, I wanted to get a note out to portfolio companies about balancing cash and growth as we go into the Summer Season (or potentially through the end of the year). Some of our founders haven’t been through a downturn before. As much as I hope I’m wrong, it pays to be thoughtful early.
Twitter is blowing up with layoff announcements from unicorns, and anecdotally, funding concerns now exceed the Series A announcements. It’s time to plan accordingly. As founders, we tend to be heads down and grinding away on our own projects vs watching market trends. Give me three minutes to address current conditions.
34 companies since the start of Q2
- Public company tech stocks are down 30-70% – I know you’re not public yet, but the most likely buyer of your startup is going to be a public company. Exit multiples are down and M&A transactions are slowing. Many of these companies have cash, but they would generally prefer cash and stock transaction (unless they feel the stock is undervalued)
- Venture funding has slowed – deal volume is down in Q1 – investors have been sitting on more cash as they watch volatility.
- Valuations are coming down – in the Valley first and slowly across the country.
- Recession – yeah, though job growth is strong, it’s still possible. And if it happens, it’s not likely to be over quickly.
What’s that mean for you?
- Tighten up your financial model – make sure you’re looking at your forecast to actual on a monthly basis. Are any of your key metrics for product/market fit slowing?
- Your job is “cash allocation officer” – Know how much cash you have in the bank. Invest where you have clarity and returns. If you don’t have clarity, run some tests before you make any major investments. Prioritize revenue and activities that increase your runway. Don’t run out of cash.
- Prioritize cash preservation over growth – I’m not saying slow your growth, especially if you know your unit economics, you have product/market fit, and you’re scaling. But, if you have areas of growth that aren’t performing well, cut them for now. Reallocate people where you have clarity.
- Fixed costs are hard to change quickly, specifically for people and real estate. If you wonder if you should hire faster, slow down. Though hiring is hard in this market, people are even harder to fire.
- If you have a round of funding lingering… get it closed.
If you need to get your financial model nailed down and get a forecast to actual visibility we can help or use your interim CFO person.
Layoffs suck. I’m not suggesting you need to consider them yet. But if you do, and you need some help figuring it out, give me a call, text, or email. We tend to auger in and work harder, but we’re here to help! If you have to do a layoff, it’s better to go faster and deeper than you think you need to. So you won’t have to do it twice.
I’m an optimist, always. And I agree with Jason Calcanis’ quote:
To collect on the up market, you need to not run out of cash.