YC Economic Downturn Advice
by Joe · 22 things on Twos
- Things don’t look good.
- Plan for the worst. Cut costs and extend your runway within the next 30 days. Your goal should be to get to Default Alive.
- Assuming your expenses remain constant and their revenue growth is what it has been over the last several months, do you make it to profitability on the money you have left?
- If you don’t have the runway to reach default alive and investors are willing to give you more money (even on the same terms) you should strongly consider taking it.
- Regardless of your ability to fundraise, it’s your responsibility to ensure your company will survive if you cannot raise money for the next 24 months.
- Poor public market performance of tech companies significantly impacts VC investing. LP’s will expect more discipline.
- As a result, during economic downturns even the top tier VC funds with a lot of money slow down their deployment of capital.
- This slow down will have a disproportionate impact on international companies, asset heavy companies, low margin companies, hardtech, and other companies with high burn and long time to revenue.
- Note that the numbers of meetings investors take don’t decrease in proportion to the reduction in total investment.
- It’s easy to be fooled into thinking a fund is actively investing when it is not.
- For those of you who have started your company within the last 5 years, your fundraising experience was most likely not normal and future fundraises will be much more difficult.
- If you are post Series A and pre-product market fit, don’t expect another round to happen at all until you have obviously hit product market fit.
- If you are pre-series A, the Series A Milestones we publish here might even turn out to be a bit too low.
- If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn.
- Remember that your chances of success are extremely low even if your company is doing well.
- We recommend you change your plan.
- Remember that many of your competitors will not plan well, maintain high burn, and only figure out they are screwed when they try to raise their next round.
- You can often pick up significant market share in an economic downturn by just staying alive.
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- For more thoughts - watch this video
- Credit: Y Combinator