COVID-19 Economic Survival Guide

We hope that in this challenging time, you and your family and loved ones are staying safe and healthy. We also want you to know the Keiretsu network remains open for business (virtually) to fund great entrepreneurs and startups! Let us put our diverse network of investors and advisors to work helping you succeed during these challenging times. We can provide follow-on funding through Keiretsu Capital, syndicate deals with family office investors, and help you engage with investors through our roadshow events. Our members stand ready to help portfolio company CEOs who need advice, counsel, and funding.

Near- and Medium-Term Responses to the Crisis

• Take swift action to cut costs and reduce burn rates – earlier decisions are rarely regretted.
• Immediately variabilize costs as much as possible and shift to equity-based compensation where it makes sense.
• Negotiate now with vendors, landlords, and others to see which costs can be reduced or deferred.
• Slow down payables, including maximizing payment schedules against terms and conditions.
• Focus on revenue generation: reorder priorities and re-plan the roadmap to emphasize your top line.
• Move quickly to get to the head of the queue for gov’t support, non-dilutive funding (e.g. DoD, NIH grants), etc.
• Defer any discretionary development roadmap modules that are off the critical path.
• Strengthen your balance sheet: close outstanding commitments and explore venture debt and lines of credit.

Positive Long-Term Tailwinds for Technology/Blockchain (and other digital tech)

The feedback from investors and CEOs has been quite optimistic as they look beyond the daily crisis. The biggest barriers for transitioning to a fully digital world that embraces native digital monies, assets, and new technologies like distributed ledger have been behavioral. In a matter of weeks, the world has been forced to implement technologies that will greatly accelerate adoption curves where blockchain and other digital technologies are involved.

• Industries that have been embracing digital distributed technologies are relative beneficiaries of this crisis. Global technology-enabled entertainment, education, electronic commerce, and digital payments are obvious examples.
• Companies that have low fixed costs, such as software businesses, are relatively well positioned to weather the crisis.
• Blockchain markets have been volatile, which has been good for trading-related businesses. We have seen large platforms announce record volume and profits.
• Digital payments are accelerating with China recently announcing record digital payment flows, including over native digital money platforms like Alipay and Wepay.
• Much of the inherent skepticism about blockchain technologies is going away. For example, the realization that the US has no effective approach for getting trillions of dollars of support to its 330 million people without using checks and paper money led Congress to try and add a digital wallet/digital money initiative to the recent crisis support bill. There is now a much clearer appreciation of what blockchain can do for digital payments among our lawmakers.
• The same is true along the global supply chain, where the provenance of everything from food to personal protective equipment has become paramount as people become concerned about where and how items are coming to them.

Expectations for Investing

The consensus of our GPs and portfolio company leaders is that this crisis will accelerate our global transition to a digital world and that this in turn makes it a good time to invest in the best long-term disruptive companies.

• Short term traders and speculators welcome volatility so long as they are not over-leveraged or on the wrong side of trades. This is not a world we occupy, but many crypto traders are very active right now.

For long term investors, the sentiments are as follows:

• There is an anticipation of a significant venture funding slowdown as we saw in the 2008 and dot-com crashes.
• Due to lockdowns, GPs are not able to meet face to face with entrepreneurs. As such, it is challenging to invest in new projects and the best GPs are using this time to work with – and strengthen – their best portfolio companies.
• Term sheets are being re-negotiated and valuations have already come down.
• Given the above, existing investors are a firm’s biggest ally and asset. They can act fast and provide short-term financing needs, at terms agreeable to both parties. Many CEOs are trying to complete add-on financings from their current investors.
• We expect a shakeout in blockchain as it is entering its early competitive phase. The crisis is just accelerating this. The strongest companies in each use case will see less competition as others fail.

What Other VCs & Angels Are Saying

Sequoia Capital | Coronavirus: The Black Swan of 2020COVID-19 is “the Black Swan of 2020,” and Sequoia Capital emphasizes the need for businesses to rapidly adapt and position themselves to seize new opportunities after the crisis subsides. Avoid false optimism but demonstrate leadership and act with decisiveness to reassure employees, suppliers, and customers.

Frontier Angels | A Letter to Portfolio Companies – Navigating COVID-19Preserve and conserve cash: triage accounts payable, get customers to prepay, draw down lines of credit, and reduce non-strategic expenses. Be prepared for a longer sales and investment pipeline and look for ways to boost short-term revenues.

Alliance of Angels | How Startups Survive the COVID-19 Economic CrisisCash is king: be prepared to downsize and look for non-equity sources of financing (grants) to supplement reduced revenues. Look for opportunities to shift your business to take advantage of new social trends – more people are working remotely, going online, and looking for ways to improve their lives as they shelter at home.

Helpful Resources for Navigating the Economic Crisis

Small Business Administration | Guidance & Loan ResourcesThe recent CARES Act provides $376 billion in relief for American workers and small businesses, and the SBA is administering the Paycheck Protection Program, EIDL Loan Advances, SBA Express Bridge Loans, and SBA Debt Relief in addition to offering business counselling and other guidance resources.

Tier Seven | Tier7Eric Hanson is a scientific advisor for the biomedical industry and is helping startups obtain non-dilutive funding and cooperative R&D agreements through DoD and other federal grants. Tier Seven specializes in helping dual-use (military and civilian) technology enter or expand their presence in DoD, federal, and international marketplaces.

Occupational Safety and Health Administration | Safety and Health TopicsOSHA is providing updated information on hazard recognition, safety standards, medical information, and other resources for protecting employers and employees during the COVID-19 pandemic. OSHA recently released a booklet on Preparing Workplaces for COVID-19.

National Institutes of Health | Information for NIH Applicants and RecipientsThe NIH has announced several funding opportunities specific to COVID-19 and has released updated guidance for proposal submission and award management, human subjects and clinical trials, animal welfare, and the peer review process for researchers impacted by COVID-19.

SBIR and STTR | Guidance on Solicitations During COVID-19The Small Business Innovation Research and Small Business Technology Transfer programs partner with federal agencies to provide R&D funding. The NIH, NSF, NASA, DOE, NIFA, USDA, and Air Force are providing updated guidance.