Startup Dear Startups: Here’s how to stay alive By HEIDI ROIZEN 26 hacker bits
There are storm clouds gathering over Silicon Valley — and it’s more than just El Niño. As a venture capitalist, I see a lot of data points within the private company marketplace. Every Monday, I sit in a room with my partners and we discuss dozens of companies, both portfolio companies as well as those we are considering for investment. When a market turns, we tend to see the signs earlier than the entrepreneurs working on the front lines. This market? I’d say it has turned. It is going to be hard (or impossible) for many of today’s startups to raise funds. And I think it will get worse before it gets better. But, hey, my entrepreneurial friend, who ever said it was going to be easy? One of Stop clinging to your (or anyone else’s) valuation You know what somebody else’s fundraise metrics are to you? Irrelevant. You know what your own last round post was? Irrelevant. Yes, I know, not legally, because of those pesky rights and preferences. But emotionally, trust me, it is irrelevant now. We even have a name for this – valuation nostalgia. Yes, it was great when companies could raise those amounts, at those prices, blah, blah, blah, but the cheap-money-for-no-dilution thing is largely over now. The sooner you get on with dealing with that, and not clinging to the past, the better off you will be. As my DFJ partner Josh Stein says, “flat is the new up.” rounds can ultimately be demotivating to your team. If you can make it through the downturn, you will have those opportunities again. But for now, reset your goals. Get to cash-flow positive on the capital you already have (aka, survive) My DFJ partner Emily Melton said this in our last partner meeting: “Must be present to win.” I used to say it at T/Maker (the company for which I was CEO) in a slightly different way: “In order to have a bright long-term future, we need to have a series of survivable short term futures.” You need to survive in order to ultimately win. This market? I’d say it has turned. my favorite expressions is: “that which does not kill us makes us stronger.” So which is it going to be for you? Tougher? Or dead. Fortunately (unfortunately?), I’ve been to this movie before, during the dot-com “nuclear winter” — anyone remember that? I’d like to think I’ve learned some things from that painful experience. I’ve seen companies live, and I’ve seen them die. And I’ve concluded that certain behaviors separate the two. Which behaviors, you ask? Here are a few from my downturn playbook for how to stay alive. Redefine what success looks like I had lunch last week with a friend of mine who broke her leg in three places four months ago. “I used to think a successful weekend was 10+ miles of running,” she said. “For now, success is going to have to mean making it to the mailbox and back without my crutches.” When a market like this turns, in order to survive, it is critical to redefine what success is going to look like for you — and your employees, investors, and other stakeholders. Holding on to ‘old’ ideas about IPO dates, large exits and massive new up You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepreneurs are still talking about their plans to the next round. What if there is no next round? Don’t you still want to survive? Yes, some companies are ‘moon shots’ (DFJ has a fair hacker bits 27