On May 28, venture capitalists Aileen Lee and Ted Wang of Cowboy Ventures hosted a Zoom chat on “Building in a Downturn.” The duo talked about the many lessons from history founders can learn from to guide their path through these uncertain times.
Here are a few lessons from their chat:
While long-term thinking is important, during these times, short term goals are vital.
“Thing about being a bit more nimble and not over-relying on things that you think are going to happen but don’t know for sure,” Wang said.
He explained that while public markets have relatively stabilized, it’s his viewpoint that we’re going to have one more material downturn. He encourages founders to think in shorter cycles for the time being. Lee agreed. She had been leading a company during The Great Recession, between 2007 to 2009, and noted that there were a number of companies that suddenly went out of business.
“[There were some] CEOs who made everything seem fine when they were doing this finger-crossed tapdance so there wound up being a ton of people looking for work. It’s like, poof, everything was gone. And I think that might be one thing that’s coming around the corner that we haven’t seen yet,” Lee said.
Transparency is key for founders who are leading teams.
One of the things learned during her time as a chief executive officer is how crucial transparency is. “Make sure everyone knows what the true north is … Make a lot of time to listen to peoples’ questions and take time to course correct. Employees or team members, if they don’t know what’s going on, they’ll make up stories… Give people confidence that you have a plan,” she said.
Be good stewards of your dollars.
One thing Lee has seen is company leaders who weren’t planning conservatively enough. “When they had to do a cut on the burn-rate it wasn’t deep enough,” Lee said.
Founders can’t just assume that the next quarters will be better, she said to assume that rest of 2020 is going to be terrible.
Investors are being a bit more cautious at this time.
While VCs may be investing in companies they’ve been working with or had their eyes on in advance, many are taking another look at their current portfolio to see which startups they can keep alive. Lee said they are asking themselves, “‘Who are going to be my winners?’ And make sure they have the capital to get through the winter. Deals are with folks who have had engagement previously. We’re checking in with [our] Series A and B [companies]. I don’t think we’re seeing a lot of fresh investment rounds,” she explained.
“For seed and pre-seed, it’s a little different,” Wang said. “We’re investing more in building something and getting a handful of customers. Questions I see are, ‘what kind of advice are you giving folks?’ What’s different in this time, in particular, is if you’re selling to other businesses, time to value is really short.” He said, for example, if you are selling software business to business, companies right now are looking for a quicker return on investment. And, while that was always the case, it’s even more pronounced now. Investors want to know that the product you’re selling will have a pretty quick return in the next 12-18 months.
Cowboy Ventures is still actively investing. Lee said this is their third fund and they have 80% of the capital remaining. They still prefer to meet founders in the Bay area in person — while sticking to the six-feet apart social distancing recommendations — however, they are flexible to meeting founders online and hosting Zoom dinner meetings.
This is the perfect time to build product.
Lee said startup founders shouldn’t solely focus on revenue. “Get people to use [your product] so that when things turn around you have something great that the market wants.”
Wang also said that it’s a good time to be a technology company because digital transformation is happening now and smaller companies have the advantage of being able to be a bit more nimble.