Operating During a Downturn: Notes for Entrepreneurs

Parent Post

What’s happening in the

What’s happening in the market

• Inflation has spiked to 40 year high, causing interest rate expectations to rise suddenly
• The Fed has indicated it will raise rates to fight inflation, even if it hurts the economy
• The stocks move in the opposite direction as the interest rate

What can you do

What can you do about it?

If you have the option to not raise capital by growing a little slower –  if you have the option of having a year of runway at a 3x growth rate versus having two years of runway at a 2x growth rate, extending your runway trumps growth rate right now.

The best scenario here is to not have to raise capital at all.

Notes for foundersTop up

Notes for founders

• Top up if possible, be open to lower valuations
• Adjust now to ensure 30+ months runway
• Modify hiring plans, consider hiring freeze (can still hire for key roles)
• Trim S&M spend unless near-term, measurable ROI
• Aim for a Burn Multiple of ~2 or lower

Act fast.

To put the depth of the reset in context: to justify a $1B valuation, a cloud unicorn today would need to plan on doing $178M in revenues in the next 12 months, if you apply the current median cloud software multiple (5.6x forward rev)

Notes for foundersTop up

Candid discussion with David Sacks and Jeff Fluhr on public markets, venture capital and historic outcomes of economic downturns.

Impact on venture market.VCs

Impact on venture market.

• VCs take their cues from the public comps those are the exit prices.
  A company that used to have a 10 billion unicorn outcome or decacorn outcome is now only worth, say 3 billion
• Liquidity has left the venture ecosystem.
  There’s just a lot less capital available to invest.
• Many firms are frozen in the market while they are awaiting clarity. In Q1, VC funding was down 20%. In Q2, it’ll fall off a cliff and you’ll see something similar in Q3 and Q4 again.

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