Market Downturn
Dear Founders, Visionaries, and VCs,
Charts are going down and to the right. VC funding is decreasing. Markets are crashing. It feels like a time of despair. Fear not. Sequoia, a leading VC firm known for investing in growth software and internet companies, hosted a series of sessions for their founders to navigate current market conditions. Their investments include Doordash, Apple, FTX, Square, Instagram, and WhatsApp.
The global venture capital market has seen a sharp downturn in 2022. The number of deals and total investment have fallen sharply. This has led to a lot of founders finding it difficult to raise funding for their startups.
It is important for founders to not give up when the market conditions are not favorable. They should still find ways to generate revenue, even if they have less funds available. If they are confident in their product and believe that it will be successful, there should be no reason for them to give up just because of a downturn in funding or investments.
This article aims to summarize and distill the most important lessons from the presentations that Sequoia gave from May 16th to June 3rd, 2022.
Adapting to Endure
Most internet and software companies are trading below pre-pandemic levels (61%).
Before, stories were enough. Now, you need to have long term, durable growth to survive.
Being cost effective is more important than ever.
Think about this time as an opportunity to hone your focus on the products that matter the most.
Figure out what your constraints are. Then, leverage them to gain focus.
To the founders: prepare yourself, the team, and the company. Delusion is the biggest danger.
Make sure that you understand the path to free cash flow.
Forecasting and Scenario Planning
Same lesson again: early-stage companies should understand how to produce free cash flow.
VC money is cut. Investments will be based in reality.
You have to eat protein. Think about how you can use customer money to grow instead of VC money.
Founders: Today might be an excellent time to raise before we enter a prolonged recession.
Have a framework to understand who the pivotal members of your team are. Balance potential with performance.
Extending your Runway
Founders need to calculate the burn rate every month and track it closely.
Your Runway equals cash balance / monthly burn.
Twelve months before the cash balance hits 0, think about raising.
Now, meeting valuation milestones is important.
Metrics and Financials are more important than your story.
Set a goal for when you want to start raising a round. Add twelve months to it. That is the recommended level of runway.
Leading in Uncertain Times
Communicating your vision with conviction, execution, and culture helps to define the path during uncertain times.
As a leader, it is important to be both motivational and inspirational.
Motivational means pushing the teams to success.
Inspirational means pulling the team together so the leader doesn’t fail.
A Leadership Team thinks the CEO and the executive team is their first team.
Have focus. Simplicity scales.
Fast decisions. Be aligned on key issues.
Most important metric to track: ability to forecast accurately. Operate to meet those expectations.
Be human and authentic during hard times. Show that you care about your team, customers, and mission.
During uncertain times, make sure to communicate focus through a strict alignment of goals.
Conclusion
We should remain cautiously optimistic and look ahead to the future. Venture Capitalists are looking for new ways to innovate, create, and solve problems. In the past few years, there has been a shift from quantity to quality in VC firms. There are more funds that are looking for innovative startups with a strong leadership team, with a clear strategy and vision to change the market. They are also paying attention to new markets that may not have been explored before. Startups should keep in mind the leadership, strategy, and vision necessary for them to succeed in an increasingly competitive and lean environment.
To learn more about how Weavechain can help your organization:
Drop us a line at hello@weavechain.com
Subscribe to our newsletter