While much of the world’s commerce has slowed to a crawl during the COVID-19 crisis, business for venture capitalists and advisers has ramped up to meet the needs of entrepreneurs looking to save — or even grow — their businesses during this uncertain time.
“Most investors who’ve been in the venture capital business for a long time will tell you that the best returns, probably in a decade, are going be from investments that are planted over the next 12 to 18 months,” says Dan Malven, Managing Director at 4490 Ventures, a technology-focused, early-stage venture capital fund. He explains, “It’s not just the buy-in price. It’s also because stronger companies can recruit talent.”
For the companies he’s working with, he says he has been busy discussing salaries, headcount reductions, furloughs and the Paycheck Protection Program (PPP). “We are trying to help them identify how much runway they have in various different scenarios,” Malven explains. “Do you lean into certain parts of your business, say product development, if the market is dragging?”
He adds, “We’ve never been busier than we have last month.”
During a mid-April YPO Presents: Ask the Experts — Entrepreneur Edition, Malven, and fellow YPO member Fred Thiel, Chairman and CEO of Thiel Advisors, shared their insights on the actions entrepreneurs should consider during this unprecedented time. Here are a few of the many, actionable take-aways from their robust discussion.
Entrepreneurs: Triage first, then pivot, if necessary
While some of Thiel’s companies are recording ‘record sales’ because they are providing products or technology solutions to ‘essential’ businesses, others are struggling.
“We have companies going through all sorts of triage,” says Thiel.
For those companies, it’s a question of how they can maintain cash levels and capital. “It’s really a question of how do you preserve capital? How do you preserve your key people? What can you do to maintain your business? A lot of people are really evaluating pivots. Now we’ve done the triage, how are we going to sustain the business for an extended period at these lower revenue levels. What do we do afterwards, and what are we going to do differently?”
Many companies are trying to figure out how to focus on servicing clients without being able to meet face-to-face, Thiel says. “How do you create demand and maintain a relationship with your customers when there’s no way for them to walk in the store?”
In this scenario, the big boxes have an advantage over smaller retailers, he warns, simply because the physical size of a Walmart allows for a lot more shoppers physically distancing while shopping.
“You’ll have some new winners and, unfortunately, some new losers,” Thiel says.
Andy Steggles, President at Higher Logic, a community collaboration platform for software companies and associations, adds, “Companies are right-sizing. Trying to anticipate what the new norm is going to be, and whether the model that your portfolio companies are adopting, will help them survive, or whether you need to make the pivot.
“It is really going to come down to your investors belief in the long-term viability of the business.” Dan Malven, Managing Director 4490 Ventures
What strong leadership looks like
During a period like this, Thiel recommends strong leadership.
“In times of crisis, people want strong leaders. Not strong meaning authoritarian, but leaders with a clear vision, leaders who believe in transparency, who are sharing exactly what’s going on, leaders who are informing and continually communicating with their people. Anytime there’s uncertainty, people want certainty.”
He adds that entrepreneurs need to be seen, to communicate and to provide a vision. “Maybe that vision, short term is, we don’t know, but we’re going to try a lot of things. Or maybe it’s, we’re going to hunker down and as we come out the other side, we’re going to do X, Y, or Z. It’s the leaders who can win over people’s hearts and maintain those hearts and minds that are critical in times like this.”
Malven advises his clients to show their employees that they are human, too. “People don’t work for companies. People work for people, and you’ve got to show them your human side. The more you can connect with them on a more human level, the more loyalty you’ll earn and the more inspiring you’ll be.”
Adds Steggles, “My experience with the leaders is that those with the highest emotional intelligence are the ones probably who are going to do a better job.”
Relationships, as always, are key
The key to funding now more than ever is the relationships you’ve built with your investors, according to both Malven and Thiel.
“It’s very hard to raise money from people you don’t have a relationship with already,” Malven says. But if you do need to get new funding, “Go back into who you’ve at least met before, someone you’ve engaged with on some level, before getting married for five to seven years.”
Thiel recommends bridge loans from existing investors if needed to keep afloat. “It is really going to come down to your investors belief in the long-term viability of the business.” He adds,“Venture capitalists like Dan are very focused on, after triaging the portfolio, picking the ones that are important to keep and finding whatever ways they can to raise capital for them.”
A lot of lemons makes a lot of lemonade
As the world battles and recovers from the COVID-19 health and economic crises, Malven and Thiel have advice for entrepreneurs looking to not just survive but thrive.
Malven advises entrepreneurs to be creative. “Whether it’s building a better culture inside your company, building better relationships, more personal relationships with clients,” he says. “Every business is going to have some type of lemonade they can make out of these lemons we are being inundated with. Those are the ones who will thrive.”
Thiel adds his ‘six-As framework,’ which means, in reference to the product-customer connection: Activate, Amazing customer service, Automate, Accelerate, Anticipate and Adapt.
“You do this in a never-ending cycle,” explains Thiel. “And the small- and medium-sized businesses have a huge advantage over the big enterprises, because big enterprises have huge inertia to change. Small- and medium-sized businesses can experiment.”
Steggles confirms the benefit of being smaller. “The nimbleness of the average entrepreneur is definitely a strategic advantage over the more established businesses.”
Watch the entire episode to learn more: YPO Presents: Ask the Experts – Entrepreneur Edition
For more crisis leadership stories like these, check out the COVID-19: Leading Through Crisis page on YPO.org. All YPO members can find breaking news, offer insights and view current discussions happening about COVID-19 impact within the YPO community on the YPO member-only platform.