3 Ways Startups Can Survive

Written by VentureXchange

April 12, 2020

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There is a lot of uncertainty about how COVID-19 will change the startup investment climate. 500 Startups, a leading global venture fund and seed accelerator decided to survey its investor community. The following facts of the impact the current pandemic has on startup investment activity. Only venture capital firms (40%) or angel investors (35%), said that the Covid-19 health crisis will have an impact on early-stage investment activity. The majority of investors suggested that Covid-19 will hurt investment activity in 2020. Nevertheless, in this article, we will share advice on how startups can survive a period of uncertainty.

The survey showed an increased interest in investing in sectors such as healthcare (46%), remote work solutions (42%), logistics (32%), and productivity software (28%). Many venture capital firms are also offering resources and guidance to startups during these tumultuous times.

Despite the current situation, It’s important to note that there was a record number of VC funds raised in 2018 and 2019. The majority of those funds are still in their active investment period. That said, many may continue to make investments for the rest of this year and into 2021 (Source: Pitchbook). In the past two years, we’ve noticed historic levels of active seed.

That includes and Series A funds, which means it’s not all negative news for capital availability at this point. In other words, startups can survive this period of uncertainty.

Source: Pitchbook

However, investors must now navigate market changes on a global scale, which may impact investment activity. Nevertheless, VCs now have to not only meet founders remotely which means that they also have to make decisions remotely. That itself could contribute to the slowdown in investment. That can continue for the next two to three months. So how can startups survive?

Decrease costs focus on needs

To prepare for a downturn in investment, cut the low-hanging fruit. Unnecessary costs and spending should be evaluated and eliminated at this point. While many startups may have already mapped out 2020 plans, investors are suggesting that now is also a good time to reevaluate operations to reduce costs. Besides, investors are suggesting that startups should reduce cash burn.

At times of uncertainty, startups need to question the activities and decide which are critical in the current moment. It may not be easy to see when the next revenue will arrive. It is a good idea to dedicated cashflow to required operations expenses that keep your business going. For activities that you wish to have, consider to put on hold until the situation clears out.

Moreover, don’t forget to check for the government to help and initiatives.

Take advantage of what is available in your area and feasible for the long term survival plan. The recent news is that the European Union is launching a new initiative to support venture capital and growth financing in Europe. The European Scale-Up Action for Risk Capital program will provide up to €300 million to increase the investment capacity of VC and PE funds. The aim is to trigger investments of up to €1.2 billion to support scale-up companies.

When you ask for government support, it often requires a lot of administration. Don’t back out, instead, think of your business and how your employees and customers will thank you.

Focus on your customers

You already know the value your customers bring to your business. Now is the time to keep them occupied and focus on consumer needs. Think of why your customers like your product and what experience they have. Your products should revolve around them. Keep in mind any changes that might have a negative impact on your consumers’ experience. Right now, your startup should fit in the market and gap in the market. Continue to measure your KPI that shows consumers satisfaction in your product or service.

It is important now more than ever for startups to become a running business and generating revenue. Nevertheless, think of the cost for a business to win new customers and users. If you have to choose between being aggressive with your pipeline or serving current customers, work on keeping churn rate low. That said keep growing your base, and re-investing in the areas where you’ve experienced success. Think of tending to an existing garden rather than planting new seeds.

Besides, many investors are suggesting that startups make customer retention and closing any open deals a priority in the short term

Be transparent

Be open with your investors, advisors, and those closest to your business. Investors are there to support you through challenging times. If you are running low on your cash reserves, but your burn rate remains high, investors and advisors need to know the situation. Be proactive about asking for help if you need it. You’re not in this situation alone, as it is likely your investors and advisors are dealing with the same circumstances.
Now is the perfect time to be transparent and keep open communication with everyone involved in your business.

Your business will go through unprecedented times, which can bring new levels of stress and busy-ness. Try to remain positive and confident in your business. If changing circumstances mean you do have to reduce your staff, operating costs, or partnerships, do so while looking for the bright side. The world may look different in 6 months and the smart, strategic moves you make now may pay off when the dust begins to settle.

Startups post-pandemic future

Lastly, according to a survey from Pitchbook, investors are playing the wait and see tactic. In the meantime, others are planning to scale back their bets this year. That said, startups can survive the crisis, despite the circumstances.

The social isolation has set some conscious or unconscious limitations on employees’ productivity. Whereas, more tangible problems like dysfunction of supply chain and disrupted demand are easier to analyze. However, as the real-world implementation of digital innovation and tech-based platforms has come through as the real hero, it will be exciting to witness how entrepreneurs and startups practice digitalization in post coronavirus pandemic.

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