In recent weeks, we met with our clients: entrepreneurs and investors from Europe, the Middle East and Asia. They shared their views and experiences during the Covid-19 outbreaks. Based on this, we hope to provide insights to motivate you and support your company in surviving this storm in the best way.
Main guidelines from Entrepreneurs
Stay positive, all businesses are being hurt, stay above water and position to accelerate when cloud breaks and climate improves. It is no shame for companies to have a decline in business this year. Be smart and prepare to come out of this storm ahead of competitors. Well capitalised companies will use this period as an opportunity to acquire the competition running out of cash. If you have concerns on fundraising or a looming liquidity crunch, talk to your investors on how to position yourself and prepare for acquisitions and to take advantage of this situation. When communicating about your company’s reaction on this storm, be positive and remind your team and clients this is universal, across industries and other geographies. This is the time to show strength and team spirit.
How to adjust your business and prepare
Over the past few weeks, the tides have clearly shifted, and it became clear this is a global storm. Some countries have not yet experienced the full impact yet, while China is seeing a turnaround and starting business as usual, we can’t say with certainty there’s not a second wave coming. So, expect severe market conditions till the end of 2020, make sure you have enough liquidity to get you through the end of Q2 2021.
It may be tempting,particularly if you are not yet feeling any serious effects of the global situation yet, to think that you are immune. Remember these are uncertain times, and it’s always better to ask for funds, or additional lines of credit when you don’t need it.
Some businesses wonder about going into ‘hibernation’. This is not recommended. It will be harder for companies to accelerate when this storm is over, and competitors can use this time to take market share away from your business.
Cost cutting and more?
All entrepreneurs will need to tighten their cost structures, perhaps reduce their marketing budgets and reduce unnecessary expenses. If you need to make headcount cuts – make it quick and a one-time event. Make cuts to sales and marketing immediately. Ask all the teams,especially non-commercial, to volunteer to convert a part of monthly salary to equity. Management will probably be the first to have to take a pay cut.
Fundraising and structuring
Many Private Equity and Venture Capital firms are still active; however, most firms will prepare for new opportunities and continue their pace of investment, some will put their activities on hold to see confirmation in effects of the new market dynamics. Regarding types of capital to use, some investors would say that in current times all capital is welcomed. The difference between equity or debt is not crucial at the moment as both will have sub-optimal terms in the short. We will likely see a lot more Debt financing this year.
This crisis also presents Opportunities
The current situation is ideal to build-out and continue on new projects and one-off initiatives. Companies can use their non-sales teams on this. This period is also perfect to have a closer look at industry verticals you could go after to hedge your current offering in the market. Also, companies can study what other geographic markets they can expand into. Several markets are weathering this storm quite well thanks to early and strict policies, expand to these markets. However, businesses in other markets, where the governments have been slower to take harsh early steps, will be hit really hard by this. Prepare to position your company outside this crisis in a new “post- Covid-19 Era” with new insights and market dynamics.
All of the above-mentioned insights are indicative only a can be tailored in specific cases and circumstances for your company. Feel free to consult one of our investment managers and schedule a video call to meet our team and discuss possible solutions tailored for your challenges.